Top Ten Tax Planning Tips

Running a business is hard enough, then June rolls around and your number bots start talking to you about tax planning, legislative changes, deadlines and personal wealth strategies. Now don’t get me wrong, all critical stuff, but it can be a mine field and one wrong step can be costly.

So, to help you step through safely and understand the most relevant things for you and your business, we have compiled the top ten things to look at in this Tax Planning season. And for the number nerds out there you can scroll below and click on the articles that take you deep into the detail.​

1. Asset Write-Off and Asset Registers: 

• Maximise Deductions: The temporary full expensing provisions allow businesses to immediately deduct the cost of eligible depreciating assets costing less than $20,000. This can significantly reduce taxable income for the current year.
• Legislation Alert: Be aware that the current $20,000 instant asset write-off threshold may drop to $1,000 from 1 July 2024 if the legislation is not passed. This change could impact your purchasing decisions and tax planning strategies, so consider accelerating asset purchases before the end of the financial year.

2. Prepayment of Expenses & Deferral of Income: 

• Defer Income: For businesses with a turnover of less than $50 million, prepaying expenses (such as rent, interest, and subscriptions) can defer taxable income into the next financial year. This can provide immediate tax relief and improve cash flow management.
• Also consider timing of your invoices in the month of June. When are jobs complete and ready to be invoiced in line with client agreements? What does our Work In Progress recognition policy involve?

3. Trust Distributions and Company Dividends: 

• Tax Effectiveness: Review your trust deeds and company dividend policies to ensure distributions are made in a tax-effective manner and if any clauses need to be updated to reflect your current circumstances. We generally recommend a Trust Deed review every 3-5 years to keep in line with compliance updates.
• Consider streaming of franked income and Capital Gains Tax amounts in your Distribution Minutes.
• When is it beneficial to incorporate Family Trust Elections (FTE) and Interposed Entity Elections (IEE)? These are not “set and forget” and should regularly be discussed and reviewed.

Recent Australian Taxation Office (ATO) releases may affect the taxation of trust distributions and dividends, so it’s crucial to stay updated and compliant.

​4. Superannuation: 

• SGC Rate Increase: From 1 July 2024, the Super Guarantee Contribution (SGC) rate is increasing to 11.5%. Ensure that your payroll systems and budgeting reflect this change.
• Year-End Contributions: Make superannuation contributions before the end of the financial year to obtain tax deductions and meet compliance requirements. We recommend making contributions prior to 15^th June to allow adequate time for funds to clear and ensure deductibility. Also, consider finalising any employee incentive arrangements to boost morale and productivity.
• Note the concessional contribution cap is $27,500.

​5. Grouping Losses and Profits: 

• Tax Rate Benefits: If you operate multiple businesses within a family group, consider grouping profits and losses to take advantage of the lower company tax rate of 25%. This strategy can optimise your tax position by offsetting losses against profits within the group.
• Review of Inter-company Management Fees and profit sharing arrangements including having proper legal documentation in place to support arm’s length commercial transactions.

6. Personal Service Income: 

• Review Distributions: The ATO has issued new guidance on personal service income (PSI). Ensure that distributions of PSI within a group comply with these guidelines to avoid penalties and additional tax liabilities.
• Consider an in depth legal opinion with a Tax Lawyer on the circumstances or lodging a binding PSI ruling with the ATO for certainty.

7. Research and Development: 

• Document Claims: Ensure that your Research and Development (R&D) activities are well-documented and meet the eligibility criteria for R&D tax incentives. Proper documentation is crucial to substantiate your claims and avoid disputes with the ATO.

8. Significant or One-Off Transactions: 

• Manage Transactions: Significant or one-off transactions, such as asset sales, mergers, or acquisitions, can have substantial tax implications. Consider the eligibility for Capital Gains Tax (CGT) rollovers and exemptions, bad debt deductions, and value shifting rules to manage your tax liabilities effectively.

​9. Private Company Loan Compliance: 

• Mitigate Risk: Ensure compliance with Division 7A rules governing loans from private companies to shareholders and their associates. Failure to meet these requirements can result in the loan being treated as an unfranked dividend, leading to additional tax liabilities for the recipients.

10. Remuneration Structuring:

• Cash Flow Management: Consider Directors Remuneration structures for Salaries & Wages versus Dividends and Trust Distributions. Structuring correctly can significantly reduce the burden of on costs and improve business cash flow.
• The use of tax effective franking credits is something that should be considered especially where distributions of such can be shared with other beneficiaries.

Dig Deeper

Whilst we’ve given you some key things to consider when it comes to year-end tax planning, there’s many other intricate things to consider.

We have broken those key topics down into the following articles that you can choose and select depending on what’s relevant to you or your business.

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