2025 Tax Planning Strategies

As we approach the end of the 2024–25 financial year, now is the time to review tax planning strategies to optimise deductions, manage compliance, and prepare for upcoming changes. Here’s what you need to consider before 30 June 2025.

1. Personal Tax Planning Updates

• Stage 3 Tax Cuts: From 1 July 2024, marginal tax rates have shifted, reducing tax for middle-income earners.
• Superannuation Guarantee (SGC) Increase: The SGC rate rises to 12% from 1 July 2025, impacting employer contributions.
• Superannuation Contributions: The concessional cap increases to $30,000, allowing greater tax-deductible contributions.
• Capital Gains Management: Consider offsetting gains with losses before 30 June to minimise tax liabilities.
• Work-from-Home Deductions: The fixed rate method now allows claims at 70 cents per hour for 2025, up from 67 cents last year.
• Motor vehicle set rate per km: This method now allows claims at 88 cents per kilometre for 2025, up from 85 cents last year.  NB You need records to support the number of km’s travelled
• ATO Data Matching:  The ATO is increasing it’s data matching capabilities, and cross references information in your tax return to information provided by government and non-government bodies.  Read here for more

2. Business Tax Strategies

• Instant Asset Write-Off: Small businesses (turnover under $10M) can immediately deduct assets under $20,000, provided they are installed and ready for use by 30 June 2025.
• Prepaid Expenses: Businesses can prepay rent, insurance, and subscriptions for up to 12 months to bring forward deductions.
• Bad Debt Write-Offs: Writing off unrecoverable debts before 30 June can provide tax relief.
• Division 7A Loan Compliance: Ensure minimum repayments are made on private company loans to avoid tax penalties.
• Declaring Franked dividends: Dividends must be declared and minutes prior to year end to be valid. 
• 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. 
• Distributions to Adult Beneficiaries:  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). 

3. Key Legislative Changes

• ATO Interest Deduction Restrictions: New rules limit deductions for ATO interest expenses, impacting tax planning.  From 1 July 2025 interest charged by the ATO for late payments or underpayments will no longer be tax deductible.
• Superannuation Tax for High Balances: A 15% additional tax applies to earnings on super balances exceeding $3M from 1 July 2025.  Whilst this is not law yet, it is expected that Division 296 will pass through Parliament and be enacted effective 1 July 2025.
• Salary Sacrifice for Electronic Devices: Employees can explore tax-effective salary packaging options under FBT regulations.
• Bendel Case Appeal and Implications for Corporate Beneficiaries:  The Bendel case has sparked significant debate regarding the treatment of unpaid present entitlements (UPEs) between trusts and corporate beneficiaries. In this case, the Full Federal Court ruled that UPEs do not constitute loans under Section 109D(3), contradicting the ATO’s long-standing position. The ATO has since appealed to the High Court, seeking clarity on whether UPEs should be treated as financial accommodation and therefore subject to Division 7A.  If the High Court upholds the Federal Court’s decision, corporate beneficiaries may avoid deemed dividends on UPEs, reducing tax exposure. However, if the appeal is successful, trusts with corporate beneficiaries may need to restructure their distributions to comply with Division 7A rules.
• PCG 2021/4: Key Date and Compliance for Professional Firms:  The ATO’s PCG 2021/4 applies from 1 July 2024 for existing businesses, impacting profit allocations in professional firms. It introduces strict compliance tests to assess risk levels, particularly where income is redirected through trusts or corporate beneficiaries. Firms should review their structures now to avoid ATO scrutiny. For a detailed breakdown, see Seed Accounting’s previous blog on this topic.

4. Compliance and Record-Keeping

• Work-Related Deductions: Ensure detailed records for home office claims, as the ATO is scrutinizing deductions.
• Avoiding Tax Traps: Be cautious of wash sales, where assets are sold and repurchased shortly after to create artificial losses.
• ATO Compliance Focus for 2025: The ATO has ramped up compliance efforts for the 2024–25 financial year, targeting key risk areas. Businesses should ensure accurate income reporting, particularly for cash sales and gig economy earnings. GST claims are under scrutiny, with a focus on overclaimed credits and incorrect registrations. Superannuation Guarantee (SGC) compliance is a priority, especially with the rate increasing to 12% from 1 July 2025. The ATO is also closely monitoring Division 7A loans, capital gains tax concessions, and work-related deductions, requiring strong documentation to support claims. For a deeper dive into these compliance areas, refer to Seed Accounting’s previous blog on ATO audit triggers.

Final Thoughts

With these changes in mind, now is the perfect time to review your tax position and implement strategies before 30 June 2025.