2024 Tax Planning Guide for Business
Posted on June 6th, 2024 by WLF
Owning a business can be both rewarding and challenging. And even when business is thriving, it can involve a lot of hard work.
So, it makes sense to invest some time into reviewing the strategies you have in place to responsibly minimise your business tax and maximise your returns.
If you followed our coverage of the recent Federal Budget, you’ll know there aren’t many changes. However, we encourage you to look through the below tips to help ensure you are taking up any relevant opportunities for tax deductions. After all, you work hard so you want to maximise your returns.
We will also be discussing this as part of our end of financial year meetings with clients.
IS YOUR BUSINESS A “SMALL BUSINESS” ENTITY?
Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover of less than $10 million and be operating a business for all or part of the 2024 year. Your aggregated turnover is your annual turnover plus the annual turnover of any business connected / affiliated with you.
LOWER COMPANY TAX RATES
The 2024 company tax rate for businesses with less than $50 million turnover is 25% – if 80% or less of a company’s assessable income is “passive income” (such as interest dividends, rent, royalties, and net capital gains).
If you use a Trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 25% to 30% for the 2024 year. (Note to access the 25% rate the company must qualify as a “base rate” entity). Please discuss with us whether your company will qualify.
IMMEDIATE WRITE OFF
The instant asset write-off for small business is slated to be $20,000 (up from the legislated $1,000) for assets purchased during 1 July 2023 to 30 June 2024.
Parliament has not passed the law to make this change happen. Additionally, in March 2024 the Senate proposed an amendment to increase the $20,000 threshold to $30,000 and to include medium entities with turnover up to $50 Million.
Whilst there’s no guarantee, we expect the threshold to be $20,000 for small business entities.
ELECTRIC CARS
There are significant tax advantages for businesses and their employees for acquiring certain electric vehicles and/or hybrid vehicles.
To be eligible the car needs to cost under $89,322 including GST (2023/24).
These cars can be provided to employees without incurring a Fringe Benefit Tax liability. This means the employer can claim the GST and depreciation (up to the EV car limit of $61,916). The employee can salary sacrifice the GST exclusive cost of the vehicle and the employer has no FBT liability.
There are a number of eligibility criteria so please get in touch with us if this is something you’re considering doing.
TAX STING – SALE OF ASSETS PREVIOUSLY 100% WRITTEN OFF
Until 30 June 2023, many businesses were able to claim 100% of assets purchased under the temporary full expensing or instant asset write-off tax laws.
When these assets are eventually sold, the full amount received for the sale will be included in your income for the year. Any replacement asset you buy will be depreciated as normal if it costs over $20,000. You may need to carefully plan for extra tax payable!
MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS
The concessional superannuation cap for 2023/24 remains at $27,500 for all individuals (increasing to $30,000 in 2024/25). Do not go over this limit or you will pay more tax!
Note that employer super guarantee contributions are included in these caps. Where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge.
For the contribution to be counted towards the employee’s 2024 contribution cap, it must be received by the fund by 30 June 2024. This means you will need to process the payments well in advance of 30 June 2024 to ensure they clear the fund.
TOOLS OF TRADE / FBT EXEMPT ITEMS
The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit. Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones.
If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased.
You should buy these items before 30 June 2024.
REPAIRS & MAINTENANCE
Make payments for repairs and maintenance (business, rental property, employment) BEFORE 30 June 2024.
PAY EMPLOYEE SUPERANNUATION NOW
To claim a tax deduction in the 2024 financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June 2024.
You should avoid making last minute superannuation payments as processing delays may cause them to be received after year-end. This means you will need to process the payments well in advance of 30 June 2024 to ensure they clear the fund.
Keep in mind that from 1 July 2024, the superannuation guarantee is increasing to 11.5% (and then from 1 July 2025 it will rise to 12%).
DEFER INCOME
If possible, defer issuing further invoices and receiving cash/debtor payments until after 30 June 2024. This strategy pushes tax payable to future years.
BRING FORWARD EXPENSES
Purchase consumable items BEFORE 30 June 2024. These include marketing materials, consumables, stationery, printing, office and computer supplies. Spend the money now and get the deduction this year.
DEFER INVESTMENT INCOME & CAPITAL GAINS
If possible, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2024.
The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date.
MOTOR VEHICLE LOGBOOK
Ensure that you have kept an accurate and complete Motor Vehicle Logbook for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2024. You should make a record of your odometer reading as at 30 June 2024 and keep all receipts/invoices for motor vehicle expenses.
An alternative (with no logbook needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.
Typically, if you have high work-related use, it is more beneficial to use the logbook method.
INVESTMENT PROPERTY DEPRECIATION
If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.
PRIVATE COMPANY (“DIV 7A”) LOANS
Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2024. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.
YEAR-END STOCKTAKE / WORK IN PROGRESS
If applicable, you need to prepare a detailed Stocktake and/or Work in Progress listing as at 30 June 2024. Review your listing and write-off any obsolete or worthless stock items.
COMPLETE YEAR-END STEPS IN YOUR ACCOUNTING FILE
Now’s the time to start thinking about ensuring your accounting file is optimised for end-of-year finalisation. For Xero users, this is a handy checklist to work through.
Similarly, if you have employees, there are various end-of-year steps that need to be undertaken such as Single Touch Payroll (STP) finalisation. For Xero users, here is their year-end payroll checklist that we strongly recommend you complete.
WRITE-OFF BAD DEBTS
Review your Trade Debtors listing and write-off all bad debts BEFORE 30 June 2024. Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June 2024.
SMALL BUSINESS CONCESSIONS – PREPAYMENTS
Small Business entities can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June 2024 and obtain a full tax deduction in the 2024 financial year.
TRUSTEE RESOLUTIONS
Ensure that the Trustee Resolutions are prepared and signed BEFORE 30 June 2024 for all Discretionary (“Family”) Trusts. The ATO has a number of Tax Rulings that may affect trust distributions to adult children, so Tax Planning for 2024 will be vital for anyone using a Family Trust. We are working with our Trust clients at present to prepare year-end resolutions.
TALK TO US
As always, we are discussing these opportunities with many of our clients as part of year-end tax planning. If you would like further information, then please book an appointment to talk to your WLF Advisor before the 30 June 2024 deadline so we can assist you to responsibly minimise your tax.
The information provided is of a general nature only. In preparing it we did not take into account your investment objectives, financial situation or particular needs.
