Navigating the complexities of tax planning can significantly impact your financial health and help you achieve long-term goals. Whether you’re looking to minimise tax liabilities, optimise deductions, or enhance financial security, our comprehensive tips will provide the insights you need. Here are some key approaches to optimise your tax position:
General Tax Tips
Structuring Strategies such as utilising tax-efficient investment vehicles like superannuation funds, family trusts, and investment bonds can help minimise tax liabilities. Additionally, considering the timing of investments and capital gains realisation can optimise tax outcomes, especially in light of any anticipated changes to capital gains tax rates or thresholds.
Leveraging available deductions is fundamental to reducing taxable income. Taxpayers should maximise deductions by claiming all eligible expenses, including work-related expenses, charitable donations, and investment-related costs. Keeping accurate records and staying informed about changes to deductible expenses is crucial for optimising deductions.
Superannuation – Contributing to superannuation funds, both concessional (before tax) and non-concessional (after-tax), offers tax benefits such as reduced income tax liabilities and tax-free investment earnings within the superannuation environment. Moreover, taking advantage of government co- contributions and spouse contributions can further enhance superannuation benefits.
Capital Gains Tax planning – CGT planning involves strategically managing asset sales to minimise capital gains tax obligations. Taxpayers can utilise strategies such as asset bundling, capital losses offsetting, and applying CGT concessions for small businesses to optimise CGT outcomes. Additionally, exploring tax-deferred rollover provisions and investing in assets eligible for CGT discounts can enhance tax efficiency.
Estate Planning – Estate planning is not only about wealth transfer but also about minimizing tax liabilities for beneficiaries. Structuring assets through testamentary trusts, gifting strategies, and utilizing applicable exemptions and concessions can help minimize estate taxes and ensure efficient wealth transfer to intended beneficiaries.
Staying Informed and Seeking Professional Advice – Tax laws and regulations are subject to frequent changes, necessitating ongoing education and professional advice. Taxpayers should stay informed about legislative updates, ATO rulings, and case law developments relevant to their tax planning strategies. Seeking guidance from qualified tax advisors or financial planners can provide personalized advice tailored to individual circumstances and objectives.
Review contracts including Insurance – Insurance companies often change their terms and conditions or inclusions. Having an annual review will ensure that you are considering the insured value of goods and address your risk profile. We have a dedicated business Seed Insurance that can provide a free and holistic review of your insurance needs.
Record keeping / audits increasing – Record keeping / audits increasing: With the increasing focus on audits from the ATO and SRO, it’s important to be aware of your risk profile and potential audit triggers, such as payroll, superannuation, personal tax deductions, and rental properties. Refer to the recent ATO media release The ATO announces its priorities for Tax Time 2024.
Tax Tips for Individuals
1. Prepay Expenses: Prepaying deductible expenses such as professional subscriptions or interest on investment loans can allow you to claim these deductions in the current financial year.
2. Maximize Superannuation Contributions: Consider topping up your superannuation to the concessional contributions cap ($27,500 for the 2023/24 financial year). This not only boosts your retirement savings but also reduces your taxable income. Also consider if you are able to make additional super contributions via unused carry forward concessional contributions.
3. Use the Super Co-Contribution: If you’re a low or middle-income earner, making personal after-tax contributions to your superannuation can qualify you for a government co contribution.
4. Manage Capital Gains and Losses: If you have realized any capital gains during the year, consider selling underperforming investments to realise a capital loss, which can offset your gains.
5. Claim Home Office Expenses: With remote work becoming more common, ensure you claim all allowable home office expenses, such as the cost of home office furniture, computers, utilities, and internet. Refer to recent changes and the set rate per hour method. The ATO’s draft Practical Compliance Guide PCG 2022/D4 outlines deductions for working from home and replaces the previously issued PCG 2020/3.
6. Keep Accurate Records: Good record-keeping across the year is crucial to support your claims for deductions. Keep receipts, logs, and documentation organized and accessible.
7. Charitable Donations: Make any charitable donations by June 30 to claim them in this year’s return. Ensure the charity is registered as a deductible gift recipient (DGR).
8. Investment Property Deductions: If you own rental property, make sure you claim all allowable deductions like advertising for tenants, body corporate fees, and repairs and maintenance.
9. Review Health Insurance: Check your private health insurance to avoid the Medicare Levy Surcharge if your income is above a certain threshold and you do not have appropriate cover.
10. Motor Vehicle deductions: You can use either the Operating Cost (Log book) or Cents per km method to claim deductions for business use of a motor vehicle. If you make a motor vehicle log book claim, you need to ensure your log book is valid (has been kept for a continuous period of 12 weeks) and current (they expire every five years. Some vehicles (eg Ute’s / motorbikes / Vans) are not classed as motor vehicles, and the deductions for these are claimed under difference methods.
Tax Tips – Superannuation and Investors
1. Superannuation Guarantee Changes Effective from 1 July 2024: From July 1, 2024, the SG rate will increase from 11% to 11.5%. This change is part of a scheduled series of increases that were legislated to gradually enhance the retirement savings of Australian workers. The SG rate is set to reach 12% by 1 July 2025.
2. Payday super – Increasing payment frequency of employee super from 1 July 2026: Now that the Single Touch Payroll electronic system for employers has been implemented, the next step is to ensure that employers pay their super on time. From 1 July 2026, employers will be required to pay their employees’ super guarantee entitlements on the same day that they pay salary and wages.
3. 30% tax on super earnings above $3m from 1 July 2025: An additional tax of 15% on earnings will apply to individuals with a total superannuation balance over $3 million at the end of a financial year from 1 July 2025. The definition of total superannuation balance (TSB) for the new tax uses the current definition and includes amounts in retirement phase pensions.
The calculation for the tax aims to capture growth in TSB over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years
4. Minimum Pensions: In order to maintain the tax exempt status of your fund, it must pay a minimum pensions by 30 June as follows to avoid significant penalties:
Age of beneficiary | Temporary percentage factor (2019-20 to 2022-23) | Normal percentage factor (From 1 July 2023) |
Under 65 | 2% | 4% |
65 to 74 | 2.5% | 5% |
75 to 79 | 3% | 6% |
80 to 84 | 3.5% | 7% |
5. Superannuation Contributions – Concessional:
- This year’s Concessional contribution cap is $27,500 per annum. Please note this is a MAXIMUM contribution from all sources and you should allow for any contributions from other sources before making your contribution. The contribution must be received by your fund before 30 June 2024.
6. Superannuation Contributions – Non-concessional: The non-concessional super cap for 2023/24 is $110,000 per annum (2024/25 $120,000), or $330,000 (2024/25 $360,000), if using the bring-forward rule. This is subject to availability and meeting work test / super balance below $1,700,000. NB The Work test will be removed from 1 July 2022 in respect of non-concessional contributions subject to caps. This change is applicable for people under age 67. However, the Work test requirement will remain for those aged between 67 and 74 years of age for personal deductible contributions.
7. Carry-forward concessional contributions: For taxpayers with a superannuation balance of under $500,000, the Federal Government recently changed the law to allow taxpayers to make additional concessional contributions beyond their $27,500 concessional contribution cap if they did not fully utilise their available concessional contribution cap in prior years commencing from the 2019 financial year. For example, a taxpayer that has only made concessional contributions of $17,500 in each of the 2022 and 2023 years could potentially use this concessional to make an additional deductible superannuation contribution of $20,000 in the 2024 financial year.
Tax Tips for Businesses
1. Small Business Tax Concessions – Available to Businesses with Turnover Under $50 million. Notes – If you have a grouped turnover of less than $10 million, you are considered a Small Business. Please note: the eligibility for Small Business CGT concessions is not included and therefore, the previous turnover threshold of $2M or the $6M net asset test still apply.
Tax concessions available to Small Businesses include:
Immediate deduction for prepaid expenditure when period is less than 12 months.
Immediate deduction for certain costs incurred in relation to establishing a business.
Simplified rules for trading stock (available for medium sized businesses from 1 July 2021).
A Small Business tax offset for individuals up to a maximum of $1,000, calculated as 8% of the tax payable on any Small Business net income (turnover under $5 million).
A rollover for tax-free changes to business structures.
Please note: the eligibility for Small Business CGT concessions is not included and therefore, the previous turnover threshold of $2M or the $6M net asset test still apply.
2. The Small Business Entity
(SBE) turnover threshold has now increased from $10 million to $50 million. This gives businesses with aggregated turnover less than $50 million access to the below small business tax concessions.
3. $20,000 small business incentives for energy efficiency for FY2023-24:
As previously announced, the Small Business Energy Incentive provides an additional deduction of 20% of the cost of eligible depreciating assets that support electrification and more efficient use of energy.
Up to $100,000 of total expenditure will be eligible, with a maximum bonus deduction of $20,000.
4. Stock – As a business that holds trading stock, we recommend that you review your stock prior to 30 June 2024. A taxpayer is allowed to value their stock at the lower of Cost or Net realizable Value (i.e. what the stock is worth). If applicable, review and write-off obsolete stock, and ensure stock take is accurate at 30 June 2024.
5. Directors loan accounts – Division 7A:
For time to time, Directors or associates of a company may borrow funds from the company for private purposes. A company has until the time of lodgement of their tax return (e.g. May 25 for 2024 year) to either receive repayment of the Director loan or establish a Division 7A loan agreement. This agreement sets out the interest rate and repayment terms. The current benchmark interest rate for FY24 is 8.27% (FY23 4.77%) p.a. If either of these are not met, then the company must declare an unfranked dividend to the shareholder which creates a significant tax liability.
6. Declaring Franked dividends: A company has the discretion to declare Dividends at any time during the year. These Dividends can be franked which means that a tax credit is included in the dividend. Dividends must be declared and minuted prior to year-end to be valid.
7. Trust Distributions:
Each year the trustees of a Trust must determine income and capital distributions from a trust. This Distribution minute must be signed off before 30 June each year and specify the beneficiaries that will be allocated each class of income.
We note that recently the ATO has sought to review distributions to adult beneficiaries such as children, and consider these as s100A reimbursement agreements. Broadly, the ATO have concerns that these adult children are not receiving distributions (which are retained in the trust for working capital). If this is applicable, we will discuss appropriate strategies with you.
8. Client Gifts:
A taxpayer who carries on a business is entitled to a deduction for an outgoing incurred on a gift made to a former or current client if the gift is characterised as being made for the purpose of producing future assessable income.
Consider providing gifts to clients in order to retain / attract business. This can form part of a marketing strategy, as well as legitimately providing a tax deduction.
9. Deferring income:
A really simple strategy has always been to consider deferring income until the following financial year by way of deferring invoices.
10. Reviewing debtors:
Taxpayers with outstanding debtors should review them to determine whether any are bad and can be written off prior to 30 June 2024 in order to claim a bad debt deduction. You should record or ‘Minute’ the decision to write-off the debt as uncollectible prior to 30 June 2024. NB This does not prohibit you from still trying to recover this debt at some time in the future.
11. Electric Vehicles are now FBT exempt
Electric cars (not Hybrid cars) will be exempt from FBT from 1 July 2022 as announced in the October 2022 Federal budget. Specifically, this legislation will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from Fringe Benefits Tax (FBT) and import tariffs. This exemption applies to eligible cars acquired and held for use from 1 July 2022 and have a first retail price below the luxury car tax threshold for fuel-efficient cars (currently $89,332).
