As the end of the financial year approaches, it’s crucial for business owners to review activities from 2024 that will affect compliance and tax obligations. Additionally, it’s time to begin planning for the upcoming financial year, starting on July 1, 2024. One of the most critical tasks for trustees of discretionary trusts is to strategically distribute trust income and capital for 2024 to eligible and appropriate beneficiaries.
Business owners should consider taking the following actions, which could reduce your 2024 income tax bill – most need to be actioned, cashflow permitting, before 30 June 2024: –
- Pay any super contributions intended for the 2024 year by the appropriate deadline for your superfund (often 21 June) or 14 June if using Xero (so they are cleared to the superfund account by Friday 28 June.
- 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 $30,000 purchased and ready for use between 1 July and 30 June 2024 may be eligible for immediate write off. * This threshold could reduce to $20,000 or back to $1,000 – 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 14 June (if using Xero); 21 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:-
Instant Asset Write-Offs – $1,000 limit from 1 July 2023 (currently as per legislation)
- The tax depreciation rules returned to normal from 1 July 2023, which includes the instant asset write-off for small businesses (group-wide turnover below $10 million) for depreciating assets costing less than $1,000. However, the government announced their intention to legislate increasing the threshold to $20,000 for the period 1 July 2023 to 30 June 2024, and further announced in the May 2024 Budget to extend this again to 30 June 2025. To date neither extension has passed Parliament, with the Senate amending the proposed changes to a $30,000 write-off threshold and extending to medium businesses, via a $50 million turnover threshold. The bill has now returned to the House of Representatives to consider the amendments. Assuming the bill is passed and enacted, small to medium businesses will be able to fully write off eligible depreciating assets that cost less than $30,000 where those assets are first used or installed ready for use during the 2024 income year. Interestingly the change in legislation for FY2025 has just been introduced into Parliament with the $20,000 cost threshold and $10m turnover threshold – before the FY2024 legislation has been passed!
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 2024 income tax year:
- Immediate deduction for depreciation assets costing less than $1,000;
- Small business restructure rollover;
- Immediate deduction for start-up costs;
- Immediate deduction for certain prepaid expenses;
- Simplified trading stock rules;
- Simplified PAYG tax instalment rules’
- Cash basis accounting for GST, ATO-calculated GST instalments; and
- FBT exemption for car parking, providing multiple portable electronic devices (e.g. laptops, mobile phones).
Superannuation Guarantee increase
- From 1 July 2024, the Superannuation Guarantee (SG) rate for compulsory superannuation contributions by employers will increase from the current 11% to 11.5%. 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.
Skills, training and digital adoption boosts
- The Government has focused on incentivising businesses to upskill employees by providing an additional 20% deduction for certain training expenditure incurred by businesses with aggregated turnover less than $50 million. The deduction will apply to expenditure incurred between 7.30 pm (AEDT) on 29 March 2022 and 30 June 2024. For example a company with a 25% income tax rate will obtain a higher deduction of 30% for eligible expenditure.
Energy efficiency bonus deduction
- Businesses that support energy-efficient practices and implement energy-saving technologies will be able to get a bonus deduction on their expenditure. A maximum $20,000 bonus deduction (i.e. on $100,000 of eligible expenditure). This measure is yet to be passed by Parliament.
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 2024 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.
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 get you to be STP compliant.
Certain industries must report payments to contractors
- Businesses in the building and construction, cleaning, courier, road freight, IT, and security, investigation or surveillance industries must lodge a taxable payments annual 1report (TPAR) by 28 August 2024. The report includes the total payments they make to contractors.
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.
