As the end of the financial year (EOFY) on 30th June approaches, it’s time to get your financial affairs in order. Whether you’re a business owner, an individual, or an investor (or all three!), here are tips to help you reduce your ATO donations.
For Businesses
Is Your Business a “Small Business” Entity?
Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected/affiliated with you) of less than $10 million and be operating a business for all or part of the 2024 year.
Lower Company Tax Rates
The 2024 company tax rate for businesses with less than $50 million turnover is 25%, if 80% or less of a company’s assessable income is “passive income” (such as interest, dividends, rent, royalties, and net capital gains). If you use a Trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 25% for the year 2024. Note that this company must qualify as a “base rate” entity to be eligible for the lower 25% company tax rate. Please discuss with us whether your company will qualify.
Tax Sting – Sale of Assets Previously 100% Written Off
Until 30 June 2023, many businesses were able to claim 100% of assets purchased under the temporary full expensing or instant asset write-off tax laws. When these assets are eventually sold, the amount received for it will be included in your income for the year, and any replacement asset you buy will generally be depreciated if it is $20,000 or more. You may need to plan for extra tax payable.
Maximise Deductible Super Contributions
To ensure your superannuation contributions count towards the 2024 contribution cap, the fund must receive them by 30 June 2024. For 2024, the concessional superannuation cap is $27,500 for all individuals (rising to $30,000 in 2025). Remember, employer super guarantee contributions are included in these caps.
If you exceed the concessional contribution limits, the excess will be included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge. To avoid this, refrain from making last-minute superannuation payments.
Defer Income
If possible, defer issuing further invoices and receiving cash/debtor payments until after 30 June 2024. This strategy pushes tax payable to future years.
Bring Forward Expenses
Purchase consumable items BEFORE 30 June 2024. These include marketing materials, consumables, stationery, printing, office, and computer supplies. Spend the money now and get the deduction this year.
Defer Investment Income & Capital Gains
If possible, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2024. The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date.
Motor Vehicle Logbook
Ensure that you have kept an accurate and complete Motor Vehicle Logbook for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2024. You should make a record of your odometer reading as at 30 June 2024 and keep all receipts/invoices for motor vehicle expenses. An alternative (with no logbook needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.
Tools of Trade / FBT Exempt Items
The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit. Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones. If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased. You should buy these items before 30 June 2024.
Repairs & Maintenance
Make payments for repairs and maintenance (business, rental property, employment) BEFORE 30 June 2024.
Pay Employee Superannuation Now
To claim a tax deduction in the 2024 financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June 2024.
Private Company (“Div 7A”) Loans
Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2024. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.
Year-End Stocktake / Work in Progress
If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2024. Review your listing and write off any obsolete or worthless stock items. Talk to us about your different options for valuing stock, and how they affect your tax payable.
Small Business Concessions – Prepayments
“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June 2024 and obtain a full tax deduction in the 2024 financial year.
Trustee Resolutions
Ensure that the Trustee Resolutions are prepared and signed BEFORE 30 June 2024 for all Discretionary (“Family”) Trusts. The ATO has recently released a number of Tax Rulings that may affect trust distributions to adult children, so tax planning for 2024 will be vital for anyone using a Family Trust.
Write Off Bad Debts
Review your Trade Debtors listing and write-off all bad debts BEFORE 30 June 2024. Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June 2024.
“Maximise your EOFY tax benefits by making deductible super contributions before 30 June 2024.”
For Investors
Investment Property Depreciation
If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.
Deductible Property Expenses
If you own an investment property, make sure you’re claiming all possible deductions. Expenses for repairs and maintenance can be deducted immediately, helping to reduce taxable income effectively. Don’t forget to claim depreciation on both the building and any fixtures and fittings. Engaging a registered quantity surveyor to prepare a tax depreciation schedule can be beneficial.
Airbnb Deductions
For those using their property for short-term rentals like Airbnb, only claim expenses for the period when the property is rented out or available for rent. This includes advertising, cleaning, and property management fees.
Investment Income Expenses
Interest on margin loans used to purchase investments is deductible, and fees paid for managing your investment portfolio can also be deducted, reducing your taxable income.
“Arrange a Property Depreciation Report for your rental property to claim maximum depreciation and building write-off deductions.”
For Individuals
Work-Related Deductions
Claim expenses for uniforms, protective clothing, and laundry costs. If you use your vehicle for work, you can claim deductions for travel between job sites and other work-related travel.
Home Office Expenses
If you have been working from home, you may have expenses you can claim a tax deduction for. The ATO allows you to claim using a “Revised Fixed Rate Method” an amount of $0.67 per work hour for the 2024 year. This amount covers most expenses from working from home, and you need to keep a detailed record of how you calculated the number of hours you are claiming. You can also claim expenses using an “Actual Cost” method – so please keep all invoice and receipts during the entire year to prove all claims.
Self-Education and Professional Development
If you are undertaking courses related to your current employment, you can claim the fees and associated costs such as textbooks, stationery, and travel expenses.
Registrations, Subscriptions, Memberships
Memberships to professional bodies or unions related to your job are deductible, as well as subscriptions to trade or professional journals.
Tools and Equipment
You can claim an immediate deduction for tools and equipment costing $300 or less. For more expensive items, claim depreciation over their useful life.
Other Personal Deductions
Fees paid to accountants or tax agents for preparing and lodging your tax return are deductible. Premiums for income protection insurance outside of superannuation are deductible, as are donations to registered charities, provided you have receipts.
Deductible Super Cap of $27,500 for Everyone
The tax-deductible super contribution limit (or “cap”) is $27,500 for all individuals under age 75. Individuals need to pass a work test if over age 67. To save tax, consider making the maximum tax-deductible super contribution this year before 30 June 2024. The advantage of this strategy is that superannuation contributions are taxed at between 15% to 30% compared to typical personal income tax rates of between 34.5% and 47%.
Carried Forward Contributions
Carry-forward contributions are not a new type of contribution; they are simply new rules that allow super fund members to use any of their unused concessional contributions cap on a rolling basis for five years. This means if you don’t use the full amount of your concessional contribution cap ($25,000 from 2019 to 2021, and $27,500 for 2021 to 2023), you may qualify to carry forward the unused amount and take advantage of it up to five years later. Carry-forward contributions are calculated on a rolling basis over five years, but any amount not used after five years expires. These carry-forward rules only relate to concessional contributions into super, not non-concessional contributions, as they have different caps. After this year, any unused 2019 concessional contributions cap will be lost forever – so now is the time to carefully consider this!
Spouse Super Contributions
You can make super contributions on behalf of your spouse (married or de facto), provided you meet eligibility criteria, and your super fund allows it. This is known as contribution splitting. Doing this not only helps to boost your spouse’s retirement savings, but it can also help you save tax if your spouse has limited income. You may be eligible for a tax offset of up to $540 on super contributions of up to $3,000 that you make on behalf of your spouse if your spouse’s income is $37,000 p.a. or less. The offset gradually reduces for income above $37,000 p.a. and completely phases out at $40,000 p.a. and above.
Additional Tax on Super Contributions by High-Income Earners
The income threshold at which the additional 15% (‘Division 293’) tax is payable on super is $250,000 p.a. Where you are required to pay this additional tax, making super contributions within the cap is still a tax-effective strategy.
Government Co-Contribution to Your Super
If you are on a lower income and earn at least 10% of your income from employment or carrying on a business and make a “non-concessional contribution” to super, you may be eligible for a government co-contribution of up to $500. In 2024, the maximum co-contribution is available if you contribute $1,000 and earn $43,445 or less. A lower amount may be received if you contribute less than $1,000 and/or earn between $43,445 and $58,445.
“Boost your spouse’s retirement savings with super contributions on their behalf. You might be eligible for a tax offset of up to $540 on contributions up to $3,000 if your spouse’s income is $37,000 p.a. or less.”
General Advice Disclaimer
This is general advice only and does not consider your financial circumstances, needs, and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from your accountants.
By following these tips, you can maximise your tax benefits and start the new financial year on a strong financial footing.
