There is much to consider in the lead up to 30 June, and this year is no different except the Stage 3 Tax Cuts which take effect from 1 July provide an extra opportunity that could minimise your tax liability this financial year.
In this article we explore what’s involved and a raft of other business matters that require attention for not just minimising tax but shining a light on opportunities that may shape the future and success of your business.
There are of course many tax minimisation strategies for both individuals and business owners and the two often overlap. However, as business accountants, and for the purpose of this article we have focussed on matters most likely to affect business owners.
Planning is key
We’ve noted in articles from prior years, the key to effective tax minimisation and business management is planning in advance.
Reviewing your accounts and business performance to 31 March and then projecting those results to 30 June, provides a strong indication of profit and tax liability.
Reducing tax and managing business events over adjacent tax years can create a range of positive business impacts, however implementing tax effective actions, often takes time and leaving it too late can mean opportunities are missed for the current year.
Employee super:
Even though your employees’ April to June superannuation payment isn’t due until 28 July, if you pay before 30 June it will count as a tax deduction in this financial year.
The majority of super funds announce their super payment deadline, which is typically around June 14 of each year.
Business owner’s super:
While it is mandatory for businesses to pay employee super, that’s not the case for business owners paying their own super.
Unfortunately, business owners often pay no super or regularly under-contribute to super fund.
The ATO has a superannuation catch-up provision which allows annual under-contribution amounts, over a rolling 5-year period, to be added to the current financial year contribution cap without penalty.
This financial year is the last opportunity for those with a superannuation balance under $500K to catch-up any under-contribution amounts from the 2019 year.
Back then the annual non-concessional contribution cap was $25,000. If all or some of the contribution cap amount was unused, it may be added to this year’s contribution even if current contributions take up the entire $27,500 annual cap.
Defer Income
Deferring income is a common tax minimisation tactic. However, this year it has a double benefit. As is usually the case, deferring reduces the income received this financial year along with its income tax liability. The second benefit is paying less tax generally next year on all income including the amount deferred from this year, thanks to the new and lower tax rates that apply from 1 July.
Bring forward expenses
Depending on a range of business factors, such as available cashflow and urgency of need, bringing forward expenditure to the current financial year can assist with reducing this year’s tax liability.
Bad debts:
If you’ve been chasing bad debts for some time, and you’ve determined there is little or no chance of being paid, it may be time to write them off. For businesses on the accrual tax basis, this year’s bad debts will only become tax deductible when a ‘written entry’ on the written-off debt is recorded.
Instant asset write-off:
An immediate tax deduction on the full cost on eligible assets that cost less than $20,000 is available for businesses with turnover of $10M or less. There are rules that apply including a requirement for the asset to have been installed and made ready for use between 1 July 2023 and 30 June 2024.
Deposits/Payments in advance:
For businesses holding deposits or payments in advance for tasks that have not commenced or will not fully complete prior to 30 June, it may be appropriate to defer all or some of that advance income to the financial year in which the tasks will complete.
Division 7A Loans to Shareholders:
Company shareholder loans should be reviewed and actions including loan repayments made, dividends declared and other administrative matters completed before June 30.
As noted earlier, these are just some of many tax minimisation strategies that form part of an overall tax planning approach. For our clients, tax planning often doubles as a ‘sounding board’ opportunity where possible business events are laid out for consideration. These discussions commonly include business continuity, succession plans or acquisitions of competitors or aligned businesses.
Of course, for family owned, small and medium sized businesses, tax planning spills over into the business owners’ personal financial affairs. Personal income tax, superannuation or SMSFs, asset accumulation and management as well as matters relating to estate planning and generational wealth transfer each have complex tax planning components.
In our experience, business owners are often surprised by the amount of tax that can be saved and the value of opportunities created through tax planning over the immediate and longer term.
On a final note, this information should be considered in context of the yet to be announced May Federal Budget. At this time, as we are unaware of announcements by the Treasurer that may affect tax planning.
Core Business Accountants specialise in business advice for growing and mature family-owned and small and medium-sized businesses. Please contact with us on (07) 5438 8088, email mail@corebusiness.com.au or visit www.corebusiness.com.au
