FRE.DM Wealth’s Top Ten Tax Tips for Business Owners
We get it — running a business is no small feat, especially if finances aren't your forte. As if managing day-to-day operations isn’t challenging enough, June rolls around, bringing with it a slew of tax planning tasks, legislative changes, looming deadlines, and personal wealth strategies that demand your attention. These elements are undoubtedly critical for your business's success, but they can also be incredibly confusing and daunting. One wrong step can lead to costly mistakes that could impact your bottom line.
Understanding the intricacies of tax planning and staying up-to-date with the latest legislative updates is essential, but it doesn’t have to be overwhelming. We’re here to help you navigate through this stressful period with confidence and ease. To make this process more manageable, we've compiled our top ten tax planning tips for the season. These tips are designed to provide you with clear, actionable insights that can help you optimise your tax strategy and keep your business on track
So, without further ado, let’s dive into these essential tax planning tips that will help you steer your business safely through the complexities of the tax season —
One — Mitigate risk by ensuring you’re compliant with Division 7A rules for private company loans.
Make sure you're fully compliant with Division 7A rules, which cover loans from private companies to shareholders and their associates. If you don’t meet these rules, the loan could be treated as an unfranked dividend, leading to extra tax liabilities.
Two — Maximise your deductions by writing off eligible assets costing less than $20,000.
Right now, businesses can immediately deduct the cost of eligible depreciating assets that are less than $20,000. This can significantly lower your taxable income for the year.
Just a heads up, though – the $20,000 instant asset write-off limit might drop to $1,000 starting 1 July 2024 if new laws are passed. This could impact your buying decisions, so think about purchasing any necessary assets before the financial year ends.
Three — Structure remuneration for improved cash flow.
Consider how you structure directors' pay, balancing salaries and wages with dividends and trust distributions. Getting this right can really cut costs and improve your cash flow. Also, using tax-effective franking credits can be a big help, especially if you can share distributions with other beneficiaries.
Four — Ensure your distributions are tax-effective by reviewing trust deeds and dividend policies.
Take a look at your trust deeds and company dividend policies to ensure your distributions are tax-effective. It's a good idea to give your trust deeds a once-over every 3-5 years to make sure you're staying up-to-date.
Consider how you handle franked income and capital gains in your distribution records.
Family Trust Elections (FTE) and Interposed Entity Elections (IEE) should not be treated as "set and forget" strategies; they require regular review to ensure their effectiveness.
Stay informed with the latest updates from the ATO, as recent changes may impact the taxation of trust distributions and dividends. Keeping yourself informed will help you stay compliant with regulations.
Five — Defer your taxable income by prepaying expenses to push income into the next year.
For businesses with a turnover under $50 million, consider prepaying expenses such as rent, interest, and subscriptions to shift taxable income to the following year, offering immediate tax benefits. Additionally, align your June invoicing with client agreements and work progress to optimise your tax position.
Six — Group your profits and losses for lower company tax rates.
If you operate several businesses within a family group, you can combine profits and losses to take advantage of the lower company tax rate of 25%. This strategy allows you to offset losses against profits within the group, potentially reducing your overall tax liability.
Make sure to document your intercompany management fees and profit-sharing arrangements correctly.
Seven — Properly document Research and Development (R&D) activities for tax incentives.
Confirm that your Research and Development (R&D) activities are well-documented and meet the eligibility criteria for R&D tax incentives. Proper documentation is essential to substantiate your claims and avoid disputes with the Australian Taxation Office (ATO).
Eight — Prepare for the Super Guarantee Contribution rate rise.
From 1 July 2024, the Super Guarantee Contribution (SGC) rate will increase to 11.5%. Make sure your payroll systems and budgets reflect this change.
Submit superannuation contributions before the end of the financial year to qualify for tax deductions and fulfil compliance obligations. Aim to complete these contributions by June 15th to ensure they are processed in a timely manner.
Keep in mind that the concessional contribution cap is $27,500.
Nine — Consider Significant or One-Off Transactions that can be tax beneficial.
Big deals such as selling assets, merging, or acquiring other businesses can have substantial tax consequences. Investigate Capital Gains Tax (CGT) rollovers and exemptions, bad debt deductions, and value shifting rules to effectively manage your tax liabilities.
Ten — Review your distributions to ensure compliance with ATO guidelines on Personal Service Income (PSI).
Stay updated with the ATO's latest guidelines on personal service income (PSI). Ensure that distributions of PSI align with these guidelines to avoid penalties. Consider seeking a legal opinion from a tax lawyer or obtaining a binding PSI ruling from the ATO for added certainty.
Navigating the complexities of tax planning can be challenging, especially during the busy end-of-financial-year period. However, with these top ten tax planning tips, you now have a guide to help you make informed decisions, optimise your tax strategy, and ensure compliance with the latest regulations. Remember – taking proactive steps and staying informed can significantly impact your business's financial health and future success. If you find yourself needing further assistance, FRE.DM Wealth is here to help with any tax confusion and frustrations you may encounter during this tax season. We’re here to provide the support and expertise you need to make this process as smooth and stress-free as possible.
For those that feel inclined and motivated, we also offer a comprehensive Tax Checklist for service-based and product-based business owners.
Here’s to a successful and stress-free tax season, enabling your business to thrive and grow confidently, with FRE.DM by your side.
