Tax planning tips for businesses

It’s hard to believe, but the End of Financial Year is just around the corner, and many business owners are naturally looking to save on tax.

Below are 7 tax planning tips to utilise for your business.

As always, the advice included below is generic in nature and has not been customised to your personal circumstances. A Wealthier Way recommends you engage a suitably qualified tax advisor to create your own tax plan.

1. Consider the timing of income and expenses

From a cash flow perspective, there is not much difference between raising an invoice on 30 June vs 1 July, but from a tax perspective, it is effectively a 1 year deferral on paying tax on this income.

Conversely, incurring deductions prior to 30 June rather than after, allows you to effectively bring forward the tax saved by 12 months.

Both strategies help reduce current year tax, keeping more money in your bank account for longer.

2. Capital purchases

As part of the Federal Budget, the instant asset write off for eligible depreciable assets was proposed to be increased to $20,000 for the current 2023/24FY and 2024/25FY.

While not yet legislated, there is a high chance this legislation will pass, allowing business operators to entirely deduct capital expenditure for purchases of $20,000 or less. This is intended to apply to businesses with an aggregated turnover of $10million or less.

The benefit here is that you are able to effectively ‘bring forward’ the depreciation on eligible assets, rather than deferring the depreciation over a number of years.

3. Pay super by 30 June

Super is deductible when paid, as opposed to when the liability accrues.

For super that accrues for the period April to June 2024, instead of paying just before the usual due date of 28 July, pay ahead of 30 June to bring the deduction forward to the current financial year.

Remember, for super to be deductible, it needs to be received by your employee’s super fund by 30 June, so try to pay at least a week ahead of the EOFY.

4. Review stock

For those businesses with stock, 30 June is a great time to do a stock take.

This not only helps identify the value of stock on 30 June, but can help identify expired, lost or destroyed stock, which is able to be claimed as a tax deduction.  

5. Consider repaying Division 7A loans

In layman’s terms, a Division 7A loan occurs when an associate of a company withdraws money from the company for personal use.

When this occurs, a fairly complex set of requirements commence. Broadly:

1. The loan must be repaid within 7 years, with the ATO specifying minimum repayments per year, with interest also being charged.
   

2. Alternatively, the amount withdrawn from the company is taxed in the name of the associate.
   

3. Alternatively, a combination of the above can take place, where you can take a proportion of the loan as income and repay a proportion, though you need to keep within the ATO’s minimum repayment per year requirements

The 4th option – repay the loan prior to 30 June 2024 to avoid the above.

6. Bad Debts

What’s worse than a customer that just won’t pay?

Paying tax on the unpaid amount!

As we approach the EOFY, it is a good opportunity to review unpaid invoices and assess likelihood of payment.

For those debts that won’t be paid, consider treating as a bad debt, so that at the least, you aren’t paying tax on the unpaid invoice.

7. Don’t forget your Trust Distribution Minutes

For those operating businesses through Trusts, or companies with Trust shareholders, remember to prepare your Trust Distribution Minutes on or before 30 June 2024.

The Trust Distribution Minute sets out how the income of the trust will be distributed.

The risk of not preparing a minute is that the Trust is taxed at 47% on undistributed profits. Ouch.