We’ve been hit with it all over the past few months – high interest rates, the cost-of-living crisis, tariffs and the tanking Australian dollar. Which makes this EOFY a great time for businesses to look for smart ways to potentially minimise their tax liability. To help your business get the best deal possible, we caught up with Mr Taxman himself, Dr Adrian Raftery. We’re only a few weeks out from the EOFY, but there is still time to save by making some smart business choices!
“Small business entities (SBEs) have access to a range of concessions which not only help reduce their taxable income but are also designed to make tax administration easier. Here are my tips for small business owners to action and minimise your business’ tax bill this year,” said Adrian.
1.Scrap obsolete stock or plant and write-off bad debts.
Got some old plant or stock that your business simply can’t sell? Physically write it off before 30 June and get a tax deduction for it this year. You can value trading stock at the lower of actual cost, replacement cost, or market selling value. A different valuation method can be applied to each item of trading stock. Debt must have been originally shown as income for the write-off to be allowed. Put your decision in writing, such as during a board minute. You also need to show that you have made a genuine attempt to recover the debt to prove that it is bad.
2.Buy any new business asset and claim it as a tax deduction this year.
There have been some great tax concessions over the past few years for small business with none greater than the immediate write-off available for the purchase of new business assets that cost less than $20,000. There is no limit to the amount of assets that you can purchase under this concession but be aware that you are only getting a percentage back and your cashflow will suffer. If your business is registered for GST, the threshold is effectively $22,000 as you can claim the 10% GST credit (up to $2,000) and get an immediate write-off for the balance in this year’s tax.
3.Build your nest egg quicker by paying 15% rather than 47%, by salary sacrificing into super.
Salary sacrificing into superannuation is one of the best, and legitimate, ways to minimise your income tax bill. Small business owners can have their business contribute up to $30,000 per year into super which is only taxed at 15% within the fund and claim a tax deduction for the contribution (25% for small companies and potentially 47% for sole traders). Note that in order to obtain a tax deduction in this financial year for any superannuation contribution (including all other non-related employees), the contribution must be received by the superannuation fund by 30 June. And if your super balance was under $500,000 as of 1 July 2024, you can carry forward up to $132,500 in unused cap amounts from the previous 5 financial years ($25,000 cap in the 2019/20 and 2020/21 years, $27,500 in the 2021/22, 2022/23 and 2023/24 years).
4.Defer income and bring forward expenses up to 12 months in advance.
It is always a good idea to defer your taxable income to next financial year (except when the marginal tax rate increases). An immediate deduction is available to SBE’s for the prepayment of allowable deductions such as lease payments, interest, rent, business travel, insurance and subscriptions, up to 12 months in advance.
5.Split your income with your lower earning spouse and pay less tax as a family.
It amazes me how many smart businesspeople do not take up the opportunity to pay less tax as a family. Too often I see them paying 47% tax on income, which could be put under their lower-taxed spouse (0% or 16%) or company (25%). If you are paying a wage to your spouse from your business, ensure that you can justify the amount paid based on the time and the skillset required.
6.Claim a deduction for expenses not paid at year end.
Just because you haven’t paid for something doesn’t mean that you can’t claim it. Businesses are entitled to an immediate deduction for certain expenses that have been ‘incurred’ but not been paid by 30 June:
7.Write up your family trust resolutions before 30 June.
After years of abuse, it is mandatory for those with family (or discretionary) trusts to have a written trustee resolution before 30 June showing the intended distribution of income to family members. Careful tax planning is required otherwise it may cost your family thousands in unnecessary (and unwanted) taxes.
8.Private company loans to shareholders.
If you have borrowed funds from your company, ensure that the appropriate principal and interest repayments are made by 30 June. Non-compliance with the strict ATO rules will result in the entire loan amount being deemed as an unfranked dividend paid and taxed at marginal rates. The private use of certain company assets (such as boats and cars) will now potentially be caught by the taxman unless a market rental fee is paid.
9.Don’t spend purely for a tax deduction.
There are so many people that get caught out at this time of the year – spending money purely to get a tax deduction. If you are running a business via a company, then you are only getting 25% back. If you want a $100,000 tax deduction, then I will gladly invoice you and accept payment. Why spend money when you only get a fraction back? Don’t get caught out!
10. Get a great accountant.
Avoid paying too much in tax or leaving yourself open to a visit from the taxman. Great accountants are like quantity surveyors … they know where the boundaries are. And their fees are tax deductible!
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Disclaimer: This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.
