With the financial year nearing its end, business owners and individuals still have an opportunity to engage in proactive tax planning. This can help maximize returns and minimize liabilities.

Importance of Tax Planning for Small Businesses

Proactive tax planning offers numerous benefits beyond mere compliance for small business owners. By effectively managing tax obligations, businesses can enhance cash flow, reduce liabilities, and free up funds for strategic use. Anticipating tax impacts enables informed decision-making that aligns with both short-term and long-term goals.

Strategic tax planning also helps identify beneficial tax incentives and deductions, such as depreciating assets, writing off bad debts, or utilizing carry-back loss provisions. Understanding and applying these opportunities can optimize outcomes and allow reinvestment into other business areas.’

Effective Tax Planning Strategies

Consider these opportunities as part of an effective tax planning strategy:

• Instant Asset Write-Off: Proposed legislation offers an immediate tax deduction for eligible business assets costing under $30,000, for businesses with turnover under $50 million, acquired between 1 July 2023 and 30 June 2024.

• Writing Off Bad Debts: Review your debtor’s ledger before 30 June to identify unrecoverable debts. Claim tax deductions and GST adjustments for bad debt write-offs in the June 2024 Business Activity Statement.

• Impact of Tax Rate Changes: Consider the reduction in individual income tax rates from 1 July 2024, which could affect your overall tax position regarding income timing, deductions, and dividend declarations.

• Review June PAYG Instalments: Consult Cadre Capital about varying the June Quarterly PAYG instalments, especially if taxable income has decreased. Draft a tax calculation to confirm the likely tax payable for the year before lodging a PAYG variation.

• Directors Loans: Make cash repayments for Division 7A loans to your company before year-end to avoid declaring dividends and the associated 8.27% interest on borrowed amounts.

• Small Business Energy Incentive: Pending legislation may provide an additional 20% deduction for costs related to electrification or energy-efficient improvements, capped at $20,000 for assets acquired between 1 July 2023 and 30 June 2024, for businesses with turnover under $50 million.

Other Strategies

Additional year-end tax planning strategies include:

• Prepaying Interest on Investment Loans: Taxpayers with investment properties or investment portfolio margin loans can prepay interest up to 12 months in advance (service period ending before 30 June 2024) and claim a deduction in the 2024 year for the prepayment.

• Government Co-Contribution: If you earn at least 10% of your income from employment or 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 $43,446 or less, with a reduced amount for contributions less than $1,000 and/or earnings between $43,446 and $58,445.

• Managing Capital Gains and Losses: Evaluate other assets for loss positions if you’ve had a capital gains tax event during the year to reduce CGT exposure. Remember that assets held for over 12 months benefit from a 50% capital gain concession.

• Logbook for Work-Related Vehicle Use: Maintaining a logbook for 12 consecutive weeks can increase motor vehicle deductions. It must be updated every five years or when vehicle use changes materially. Keep written evidence of all motor vehicle expenses (insurance, services, license, registration) during the 2024 financial year. Without a logbook, the maximum claim is 5,000 kilometres at 85 cents per kilometre for the 2024-25 financial year.

• Paying employee superannuation by 30 June to claim a tax deduction in the current financial year.

• Making concessional superannuation contributions or additional salary sacrifice contributions up to the $27,500 cap.

• Using prior years’ unused concessional superannuation caps under the Concessional Catch-Up rules, subject to eligibility criteria.