EOFY Tax Strategies For Small Business

End-of-year tax planning may not rank high on the list of enjoyable activities for business owners, yet it holds significant potential for boosting profits. Strategically addressing key elements before June 30 provides an opportunity to forecast profitability accurately and minimize tax liabilities within legal bounds.

Contrary to common belief, effective tax planning isn't solely reserved for complex or high-risk scenarios. Even routine transactions warrant careful tax considerations, particularly regarding capital gains tax implications, ensuring optimal returns and sidestepping unfavourable tax outcomes.

Evaluate Your Superannuation Strategy
Engage in discussions with your financial advisor and accounting advisor regarding key aspects of your superannuation strategy, considering contribution caps and eligibility.
For the 2023/2024 year, the contribution caps stand at:

• Non-concessional: $110,000

• Concessional: $27,500

Superannuation regulations dictate contribution eligibility. Moreover, amendments to these rules may permit personal concessional contributions, aiding in offsetting your personal tax liabilities.
Regularly reassess your superannuation approach with your advisors to enhance prospects for retirement. Incorporate the following into your superannuation strategy and ongoing tax planning endeavours:

• Consolidating your superannuation

• Exploring Self-Managed Super Funds (SMSFs)

• Verifying adequacy of current insurance levels within your superannuation fund

• Implementing strategies aligning your business with superannuation (e.g., utilizing SMSFs to acquire business premises and leasing them back)

• Leveraging CGT Small Business Concessions

• Maximizing contributions through bring forward contribution rules or catch-up concessional contributions

• Initiating a pension to access the tax-free environment within superannuation

• Reviewing your current superannuation investment strategy to ensure it aligns with your retirement goals.

 
Accurately Forecast Profit and Loss (P&L)
It's self-evident that, dealing with income-based tax, attempting to forecast your tax position without a thorough grasp of your taxable income is futile. Every business should, at the very least, possess a P&L forecast. This serves as a fundamental starting point for tax planning.
Moreover, the effectiveness of tax planning hinges on timing. Typically, tax planning is executed during April and May, leveraging actual figures for the majority of the year, thereby necessitating forecasting for only the remaining three months.

Forecast Your Tax Position
As crucial as implementing tax planning strategies is the proactive understanding of your tax liability well before the lodgement due date. It's universally frustrating to be confronted with a substantial tax bill just before the deadline due to a lack of effective planning.
In addition to forecasting year-end profit and estimating annual tax payable, it's vital to explore opportunities to adjust the June PAYG Instalment to bolster cash flow.

Review Your Business Structure 

Evaluate your existing structure to ensure it effectively supports your business commercially, safeguards assets, and legally optimizes tax liabilities. It's crucial to recognize that after June 30th, establishing a new structure to aid in tax planning for the current year is not possible. Therefore, it's imperative to complete this assessment before the end of the financial year.

Assess your current remuneration and group structure and seek advice on potential opportunities to restructure remuneration for key individuals and shareholders in a tax-efficient manner. This entails ensuring an appropriate balance of salary and wages, dividends, and trust distributions.

Other Considerations

• Review Your Equipment & Plant Register - Examine your fixed asset register for any disposed of or obsolete items that can be written off before June 30th, 2020. Collaborate with your advisor to ensure the register is updated to reflect purchases and sales of assets throughout the year.

• Review Your Trade Debtors - Examine your trade debtor list for any outstanding amounts exceeding 60 days and evaluate whether they should be considered for write-off as bad debts before the year's end. To benefit from the deduction in the current Financial Year, it's imperative that any bad debt is written off by June 30th. Additionally, review the listing for any amounts owed by related entities that could potentially present a Division 7A issue.

• Review Your Stock On Hand - Assess your current stock on hand to ascertain if there are any prospects for revaluing it as of June 30th. Reviewing inventory before this date provides your accountant with the chance to identify obsolete or overvalued stock and make necessary adjustments. This action can effectively reduce your tax liabilities.

• Other opportunities - assess if there are other considerations such as Fringe Benefits Tax and Payroll Tax, and whether there is an obligation and any opportunity to reduce these taxes.

EOFY Tax Strategies For High-Income Earners 

WFH (Working From Home) and Hybrid Work
Since the onset of the pandemic, working from home (WFH) and hybrid work arrangements have become commonplace for many individuals. During the COVID-19 period, the Australian Taxation Office (ATO) temporarily raised the home office deduction rate from 52 cents to 80 cents per hour for WFH expenses. However, this temporary increase has now reverted to 67 cents per hour, along with a revised method that's a bit more complex. To learn more about claiming tax deductions for working from home, reach out to us for the most up-to-date information.

Additional Personal Contributions To Your Superannuation Fund Or SMSF
Contributing to your super fund not only helps grow your retirement savings but also offers tax benefits. Each year, individuals can contribute up to $27,500 into their chosen super fund, including payments made by their employer/s, under the concessional contributions cap. However, exceeding this cap results in an effective tax rate of 49% on deductible superannuation contributions. Starting from July 1, 2024, the concessional contributions cap will rise from $27,500 to $30,000.

Negative Gearing Your Property Investment
Negative gearing is defined as a situation where expenses related to an asset, including interest costs, exceed the income generated from the asset. Negative gearing isn't limited to housing but can apply to any investment. Taxpayers who experience negative gearing can offset their losses against other income, such as salary and wages. It's common for high-income earners to have negatively geared investment properties, where the tax deductions from renting out the property exceed the rental income received.

Avoid The Medicare Levy Surcharge Through Private Health Insurance
Australian taxpayers earning over $27,000 are subject to the Medicare Levy, set at 2% of their taxable income. Moreover, high-income earners—singles earning $90,000 or more and couples with a combined income of $180,000 or more—who lack Private Health Insurance or Hospital Cover are liable for the Medicare Levy Surcharge. This surcharge amounts to an additional 1-1.5% of an individual's taxable income. Its purpose is to incentivize individuals without Private Health Insurance to consider obtaining coverage and utilize the Private Health system.

Regular Charitable Donations
In light of the profound impact of the COVID-19 pandemic on communities, contributing back is now more crucial than ever. Individuals who are dedicated to supporting their communities or specific causes should contemplate making tax-deductible donations to Australian Deductible Gift Recipients (DGRs).

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Advice Disclaimer: This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).