Tax planning for businesses this financial year end

With the end of financial year almost here, it’s time to take stock of activities during 2025 that will impact on compliance and tax for the year and also look ahead to planning for next financial year commencing 1 July 2025. Of key importance is the requirement for trustees of discretionary trusts to consider how best to distribute trust income and capital for the 2025 year to eligible and appropriate beneficiaries.

You should consider taking the following actions, which could reduce your 2025 income tax bill – most need to be actioned, cashflow permitting, before 30 June 2025:-

• Ensure any eligible bad debts are written off correctly through your accounting software or the decision to write them off is documented correctly in a director’s resolution.
• Consider purchase of new assets. Assets costing up to $20,000 purchased and ready for use between 1 July and 30 June 2025 may be eligible for immediate write off.  – Please see more details about this further below. 
• Ensure a full stock take is carried out, including scrapping obsolete stock.
• Review your WIP to include only legally recoverable / billable amounts.
• Pay employee super by 13 June (if using Xero); 20 June if using MYOB or ATO Small business clearing house if not already done to get the deduction this year (to be cleared to superfund by 30 June)
• If intending to claim for eligible R&D expenditure, total expenditure/deductions must exceed $20,000 in general. Registration with Government Department must be within 10 months of end of income year and prior to lodgement of tax return.

Other recent changes to legislation applicable to this financial year:-

• $20,000 small business asset write-off: 
• The Labor Party announced that the $20,000 small business asset write-off concession will be extended to 30 June 2026. However, businesses that wish to obtain the deduction for the 2025 financial year will need to have received and installed the asset prior to 30 June 2025 to be eligible. The small businesses asset write-off allows businesses with an aggregated turnover of less than $10 million to immediately write off eligible assets up to $20,000. These assets must be first used or installed ready for use before 30 June 2025. Assets valued above $20,000 that cannot be immediately deducted will be placed into the small business simplified depreciation pool. These assets will depreciate at a rate of 15% in the first income year and 30% each subsequent income year thereafter. Therefore, any assets costing more than $20,000 that are acquired by a small business before 30 June 2025 will be eligible for a 15% deduction in the first year. Assets acquired by group entities which merely lease the assets to other group business entities or unrelated parties may not be eligible to apply the concession.

• Concessions available for small business entities
  • Businesses that are small business entities (group-wide turnover below $10 million) may qualify for the following tax concessions in the 2025 income tax year:
    1. Immediate deduction for depreciation assets costing less than $20,000;
    2. Small business restructure rollover;
    3. Immediate deduction for start-up costs;
    4. Immediate deduction for certain prepaid expenses;
    5. Simplified trading stock rules;
    6. Simplified PAYG tax instalment rules’
    7. Cash basis accounting for GST, ATO-calculated GST instalments; and
    8. FBT exemption for car parking, providing multiple portable electronic devices (e.g. laptops, mobile phones).

• Superannuation Guarantee increase
  • From 1 July 2025, the Superannuation Guarantee (SG) rate for compulsory superannuation contributions by employers will increase from the current 11.5% to 12%. The rate is applied to an employee’s Ordinary Times Earnings.
  • Depending on applicable awards or employment contractual arrangements, the salary component of an employee’s remuneration might need to change from 1 July due to the increase in the rate.
  • Obligations, penalties for and other outcomes arising from late payment of super guarantee can be severe so compliance in this area is very important.

• ATO focus on family trusts
  • Longstanding anti-avoidance rules in section 100A of the tax act can apply where trust income is appointed on paper to a beneficiary on a lower tax rate, but someone else gets the benefit of the underlying funds. This has received limited attention over the years, but the ATO has embarked on a compliance program with renewed focus on administering these rules. Of particular focus is appointing trust income to family members with lower tax rates. There is an exclusion from these anti-avoidance rules where arrangements are entered into in the course of ordinary family or commercial dealings. The legislation does not define what this phrase means and there has been little minimal case law to provide guidance on this. The ATO has issued rulings and guidelines setting out their views on these rules. Trustees ought to have regard to the ATO’s views when making decisions on their appointment of trust income leading up to 30 June 2025 and beyond. We can provide guidance in relation to your particular circumstances, to ensure you are making fully informed decisions in this respect.

• Allocation of professional firm profits
  • The ATO has instigated a program for determining when they will likely review the tax arrangements of professionals, and possibly progress to an audit. The issue in the ATO’s sights is whether an equity holder in a professional firm is taxed on a sufficient amount of their profit share from their firm themselves.
  • The ATO’s Practical Compliance Guideline PCG 2021/4: Allocation of professional firm profits sets out the ATO’s approach to overseeing tax compliance amongst owners of professional firms in the fields of accounting, architecture, engineering, financial services, law, medicine, management consulting and others.
  • The PCG sets out eligibility criteria and a risk scoring system. Concessional arrangements relying on the previous guidelines from the ATO (now suspended) are in place until 1 July 2024. The new guidelines apply with no further grandfathering from 1 July 2024.
  • Decisions on the allocation of professional firm profits ought to take into account the ATO’s compliance approach. We can help you make those decisions and understand the ATO’s approach.

• Non-deductibility of GIC and SIC: General interest charge (GIC) and shortfall interest charge (SIC) imposed on government debts will not be tax deductible from 1 July 2025. For taxpayers with late returns outstanding, consideration should be given as to whether these returns should be filed and assessed by the ATO before 30 June 2025 where any GIC and SIC imposed can still be deductible.

• Single Touch Payroll
  • All employers are now required to run their payroll and pay their employees through accounting and payroll software that is Single Touch Payroll (STP) ready.
  • If you are still having STP issues, please get in touch with us so that we can help you to be STP compliant.

• Certain industries must report payments to contractors
  • The ATO requires reporting of payments made to contractors in the following industries:
    • Building and construction
    • Cleaning services
    • Road freight and courier services
    • Information technology services
    • Security, investigation or surveillance services
    • Government entities
  • The report is due by 28 August 2025 for the year ended 30 June 2025.

We recommend you review and consider your tax debt arrangements with the ATO as it may be more tax effective to use finance to pay your tax debts where the interest on the finance could be tax deductible. The ATO has also significantly tightened up on GIC remission requests to the stage where it is very difficult to get any remission request granted.

We welcome your call to discuss tax planning for you individually as well as for your business.

As always, if you have any questions or concerns about your tax planning for this financial year – speak to your Knight partner. They’re with you every step of the way.