Key tax planning considerations for businesses and their owners

Expenses

In most cases, incurring expenses prior to 30 June will mean that a tax deduction can be claimed. Therefore, if a business is planning to incur a substantial amount of expenditure not long after 30 June, it would help to think about bringing forward these expenses to receive the benefit of the tax deduction in the current financial year. 

A review of annual expenditure can also be undertaken to ensure that all relevant expenses have been correctly captured, including business expenses that may have been paid via a personal bank account or credit card.  

Trade Debtors 

Where management concludes that a debtor won’t be recoverable, the amount can be written off as a bad debt and a tax deduction can be claimed for the equivalent amount. Debtors as of 30 June should be reviewed for recoverability each year and a recoverability assessment documented to support the amounts deemed to be bad debts.

Obsolete Stock

Where management concludes that old stock is obsolete and therefore has no residual value, the cost can be written off and a tax deduction can be claimed for the equivalent amount. Inventory as of 30 June should be reviewed for obsolescence each year and an assessment documented to support stock deemed to be obsolete. 

Capital gains tax

If a capital gain has been made during the financial year, in the absence of carried forward capital losses and/or tax losses, investments that are in a loss position may be crystalised to offset that capital gain.

Superannuation

Superannuation payments to employees are only tax deductible when paid. Therefore, you may consider paying the June quarter superannuation by 30 June to be eligible to claim a tax deduction in the current financial year. It is important to know when a superannuation payment is considered ‘paid’. In some cases ‘paid’ is defined as when the employee’s superfund receives the payment. 

Utilising available tax incentives is a great way for businesses to support their growth strategy. The purpose of the tax incentives described below is to encourage and reward businesses for investing in themselves. 

Small business skills & training boost

This incentive is open to businesses with aggregated turnover of less than $50m. Eligible businesses can receive an additional 20 per cent tax deduction for the cost of external training courses delivered to employees by registered training providers. 

Instant Asset Write-off 

As part of the 2023-24 Budget, it was announced that small businesses with aggregated turnover of less than $10m would be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. 

Research & Development (R&D)

Providing the relevant criteria is satisfied, there are tax offsets available for entities involved in approved R&D activities. The purpose of this incentive is to support innovative businesses and fuel innovation more broadly. The type of offsets available are contingent on a company’s aggregated turnover . 

Division 7A is an area of tax legislation that often causes confusion. However, what’s important to know is that where a Division 7A loan arrangement exists, there are minimum payment requirements (principal & interest) that need to be satisfied annually until the loan is fully repaid. These minimum repayments can be funded by way of a cash payment or set off through the declaration of a dividend. Cash payments must be made by 30 June and declaring a dividend may result in an increased tax liability. It is prudent that the funding of minimum repayments is appropriately considered, mindful of the significant increase in the Australian Taxation Office benchmark interest rate from 4.77 per cent in FY23 to 8.27 per cent in FY24.

Trustees of discretionary trusts are responsible for completing a Trustee Resolution for each financial year by 30 June. Completing a Trustee Resolution often involves determining the beneficiaries that will be entitled to the income of the trust for that year. The Trustee should review the terms of the Trust Deed on a regular basis to understand who the eligible beneficiaries are and the types of income that can be distributed. Often, the tax profile of the beneficiaries is an important consideration to ensure that tax efficiency is achieved. 

With the renewed focus on the validity of trust distribution entitlements (Section 100A), the creation of a legal entitlement to a beneficiary where a distribution is made and the focus on Trust structures more broadly by the Australian Tax Office, properly completing a Trustee Resolution is critical. 

One of the most common ways to save tax and accumulate wealth simultaneously is to salary sacrifice. The yearly concessional contributions cap for the 2024 financial year is $27,500. If you have not fully utilised this cap, salary sacrificing a portion of your wage may be considered. The salary sacrificed amount would be concessionally taxed at 15 per cent in the superannuation fund and may potentially be withdrawn from the superannuation fund tax-free in the future providing the relevant criteria is satisfied. 

Keep in mind that where your combined income and concessional contributions exceed $250,000, an additional tax of 15 per cent is charged on the excess over the threshold or the taxable super contributions, whichever is less (Division 293 tax).