Effective tax planning goes beyond mere compliance; it serves as a strategic advantage for small business owners. Exploring tax planning involves uncovering essential strategies that can greatly influence your business’s financial well-being. Tactics such as capitalizing on instant asset write-offs, optimising small business tax concessions, and employing income splitting can yield immediate advantages. Find out the about 10 tax planning strategies.

Why Early  Tax Planning Matters

Early planning is not just about peace of mind. It’s about making the most of your money. Here are some reasons to start preparing for tax season well in advance:

  1. Identify Potential Tax Deductions and Credits: The earlier you start, the more time you have to identify potential deductions and credits, ensuring you’re not paying more tax than necessary.
  2. Avoid Last-Minute Errors: Rushing to finish everything at the last minute can lead to mistakes. Early preparation gives you ample time to review your records and ensure accuracy.
  3. Plan Cash Flow: Understanding your tax obligations ahead of time can help you manage your cash flow better, ensuring you have funds ready to meet your tax liabilities.
  4. Leverage Expert Advice: Starting early allows you to consult with tax professionals like us who Incorporating these strategies into your tax planning can significantly reduce your tax liability and enhance your bottom line. However, it’s important to remember that every business is unique, and what works for one may not work for another.

Our 10 Top Tax Planning Tips

  1. Small business entity depreciation rules

A Small Business Entity (SBE) is broadly an entity conducting a business with an annual aggregated turnover of less than $10 million. If you are an SBE that chooses to apply the simplified depreciation rules, then you can claim an immediate deduction for eligible fixed assets that cost less than $20,000.

Assets costing $20,000 or more, will be added to a pool and depreciated at 15% in the first year and 30% in subsequent years. To claim depreciation in the current financial year, the asset must be first used or installed ready for use by 30 June 2024.

  1. Other concessions available for small businesses

Small businesses can qualify for a number of income tax concessions that may be relevant for their year-end tax planning. Provided your business has a turnover of less than $50 million, it may qualify for:

  • A lower corporate tax rate of 25%
  • Immediate deduction for certain start-up expenses and prepayments
  • Simplified trading stock rules
  • Pay as you go (PAYG) instalment concessions
  • A two-year amendment period
  • Excise concessions.

Businesses with a turnover of less than $10 million may also qualify for a roll-over concession when undertaking a genuine restructure of a small business.

  1. Trust distributions

Trusts remain a popular vehicle in Australia from which to conduct businesses or own the equity in a business. If your business structure involves a trust, then it is crucial that the Trustee prepares a resolution to distribute income to beneficiaries prior to 30 June 2024 (or earlier as required by the Trust Deed).

Failure to do so may result in the Trustee being taxed on profits at the highest marginal rate of tax (45% + Medicare levy) or distributions being assessed to default beneficiaries. Beneficiaries must also be notified of their entitlement to trust income by the earlier of the due date and actual date of lodgement of the Income Tax Return for the trust.

To ensure the resolution can be made with tax effective considerations in mind and also be documented prior to year-end, allow plenty of time to meet with your tax advisor well before year end. The validity of trustee minutes is routinely the subject of ATO audit activity.

  1. Variation of PAYG instalments

Subject to a review of your year-to-date tax position, it may be possible to reduce the amount of your March and June 2024 quarterly PAYG instalments. This can help improve your cashflow now rather than waiting until you lodge your Income Tax Return to receive a refund.

  1. Bad debts

If you have any bad debts, ensure that these are written off prior to 30 June 2024 to claim a deduction. Minutes should also be prepared to formally document the write off.

  1. Non-commercial losses

The non-commercial loss provisions will apply to deny an individual from offsetting a loss from a business activity against other income earned during the income year unless one of the following four tests are passed:

  1. Assessable income test – The assessable income from the activity for the year must be at least $20,000.
  2. Profits test – The activity must have resulted in a profit in at least three out of the last five income years, including the current year.
  3. Real property test –The total reduced cost bases of real property or interests in real property used on a continuing basis in carrying on the activity must be at least $500,000.
  4. Other assets test – The total value of other assets (other than motor vehicles) used on a continuing basis in the activity must be at least $100,000.

There is an exception for primary production and professional arts businesses if your assessable income from other sources not related to that particular business activity is less than $40,000, excluding any net capital gains.

Individuals with an adjusted taxable income of $250,000 or more will generally not be able to offset losses from non-commercial activities against other income. However, you may be able to request the Commissioner’s discretion to allow you to claim the loss where special circumstances exist.

  1. Small business capital gains tax (CGT) concessions

A capital gain on the sale of an active asset that is used in the course of carrying on a business may be reduced if certain basic conditions are satisfied. One of the entry tests is that you must either be a CGT small business entity (carry on a business and have less than $2 million in aggregated turnover) or satisfy the maximum net asset value test (have an aggregated value of net assets of less than $6 million).

The concessions include:

  • Small business 15-year exemption.
  • Small business 50% reduction.
  • Small business retirement exemption.
  • Small business roll-over.

These concessions can be extremely valuable to business owners looking to sell or restructure their affairs. The concessions can be complex to correctly apply, particularly when they are applied to a business conducted via a structure involving multiple entities.

  1. Timing of income and expenses

Consider the recognition of income leading up to 30 June 2024, such as:

  • Timing of sales income
  • The date of signing a contract for the sale of a CGT asset.

Also, consider bringing forward deductions prior to 30 June 2024, such as:

  • Acquiring depreciating assets
  • Undertaking repairs on property and machinery
  • Superannuation contributions.

Prepaying expenses –  The timing of income and expenses will be particularly important this financial year with the stage 3 tax cuts taking effect from 1 July 2024. This will result in lower taxes for many individuals next financial year.

  1. Trading stock

You should undertake a stocktake on 30 June 2024. Stock can be valued under different methods for each item of stock:

  • Cost
  • Sales value
  • Lower of market value or replacement cost.
  1. Small Business Skills and Training Boost

You may be entitled to an extra 20% deduction on eligible training expenditure incurred between 29 March 2022 and 30 June 2024. Broadly, to claim the 20% boost, you must be carrying on a business and have an aggregated turnover of less than $50 million. Furthermore, the expenditure must be for the provision of training employees of your business and it must be charged by a registered external training provider.


How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

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