2024 Tax Planning Strategies for businesses and individuals
With the 30th of June quickly approaching, it's time to consider potential strategies to legally minimise your tax obligations come lodgement of your tax return. With the rising costs of living and inflationary pressures, it's never been more important to maximise the tax effectiveness of your actions to ensure you end up with more in your pocket.
As the saying goes, "If you're paying a lot of tax it means you're making a lot of money", but making a lot of money doesn't always have to equate to having a hefty tax bill. At DGF Advisory, we are forward focussed and like to be on the front foot when it comes to maximising your wealth creation, whether this be from your business activities or just your personal tax activities, and we've outlined some general tips and strategies to consider before 30 June 2024.
1. Consider stage 3 tax cuts:
With the stage 3 tax cuts outlined in our 2024/25 Federal Budget Summary
the benefits of your tax planning strategies are two fold; the first being the bringing forward of the tax deduction so you benefit earlier rather than waiting until the lodgement of your 2025 tax return, but secondly, as an individual, the tax benefits to you are likely to be greater by executing these strategies in the 2024 year. As the tax brackets for most income ranges, along with the marginal tax rates applicable to each of those reducing, if your income were to be the same across both 2024 and 2025, the tax savings will be greater on employing the same strategy in 2024 (if your taxable income is above $18,200).
2. Top up your super contributions:
Topping up your superannuation balance is often one of the first tax-saving measures accountants consider when discussing tax planning strategies. Did you know you could claim up to $157,500 of superannuation contributions in your personal tax return? At a marginal tax rate of 45% + Medicare Levy, that equates to a tax saving in your personal return at tick over $74,000! Of course, there are criteria to be met, and we would strongly advise you to discuss your personal circumstances with your financial adviser when it comes to deciding whether making additional superannuation contributions is the best plan for you, however tax savings are abound when it comes to using your super fund as a tax planning tool.
It is worth noting the funds must clear into your member account by 30th June 2024 in order for the tax deduction to be claimable in 2024. As payments can take up to 14 days to clear into member accounts, it is important not to leave this decision too close to 30th June, as the deduction will not be claimable if it clears into your account on 1 July or after.
3. Pay superannuation obligations owing for June 2024 quarter:
Further the above comment, superannuation is only deductible when paid. Where businesses have incurred superannuation liabilities for the June 2024 quarter, whilst the payment due date is not until 21 July, if it is paid (and cleared into member accounts) by 30 June, bringing forward this payment will allow you to claim the superannuation expense in 2024, otherwise, the deduction is held over until 2025.
4. Consider Pre-Payments and bringing expenses forward:
Eligible businesses and individuals can pre-pay certain expenses such as interest on loans, insurance premiums, subscriptions and rent where the service period for the expense is 12 months or less and that the service period ends in the following income year (eg by 30 June 2025 for 2024 prepayments). Where eligible taxpayers are able to pre-pay these expenses before 30th June 2024, they may be eligible to bring forward the timing of the tax deduction into the current year.
Similarly, where there are costs anticipated in the coming months relating to your business or personal affairs, such as investment property expenses (repairs being a good example) or work related expenses such as memberships or self education costs, paying these before 30th June will enable you to deduct these costs in 2024, to receive a better tax outcome than delaying to 2024 and to receive this benefit sooner rather than later.
5. Equipment purchases and review of fixed asset register:
Whilst, at the date of publishing, the 2023/24 instant asset write off rules where eligible businesses could claim an immediate deduction for business assets purchased up to a value of $20,000, is still not actually law, it is expected that this law will be passed through parliament in some form prior to 30 June, potentially with a higher deduction threshold of $30,000.
The 2024/25 Federal Budget extended the 2023/24 announcement by an additional 12 months, meaning businesses do have an additional year to utilise the immediate write-off rules.
Where eligible business are able to purchase business assets installed and ready-for-use, up to a threshold of $20,000, they may be able to immediately write off that asset as a tax deduction in their 2024 tax return.
It is also important prior to 30th June to review your fixed asset register to determine whether any fixed assets or equipment is either scrapped, no long in use, or to be written off, so that any unused depreciation isn't unnecessarily carried forward to future years.
6. Review debtors:
Are you carrying debtors in your aged receivables where you know the invoice is unrecoverable? Where you have identified such debtors in your aged receivables report, writing off these debts before 30 June 2024 will allow you to claim the bad debt expense as a tax deduction in your 2024 tax return.
7. Delaying income to July:
With the reduction of marginal tax rates for all income brackets (where above $18,200 of taxable income), income received in the hands of individuals will attract less tax in 2025 compared to it being taxed in 2024. In addition, by delaying the income receipt until July, you won't have to pay the (reduced) tax on that income until June 2026 potentially.
Similarly with corporate entities and trusts, the delaying of income until July will give rise to what we call a "Tax Holiday", in that you delay the tax of that income that might be received a few days later than when you might otherwise receive it, to be taxed a further 12 months down the track, meaning you have more cash flow in your business to use as working capital and fund investments.
8. Reviewing your Division 7A obligations:
Where you have existing Division 7A obligations arising, or have withdrawn funds from your private company, it is important to understand what your repayment obligations are to ensure you are not subjected to unnecessary deemed dividends and associated taxes on this deemed income.
9. Executing Trustee Resolution by 30 June:
Trustees are required to resolve how to distribute a Trust's net income by 30 June each year. By undertaking a review of year-to-date income, discuss projected income for the balance of the year, and after applying any tax planning strategies, we can review the projected income across your family group of entities to help determine who the Trustee resolves to distribute Trust income and capital to, while minimising the tax consequences to your family group of entities.
10. Other considerations:
Other items to consider include:
Paying income protection insurance premium by 30 June
Making any donations to deductible gift recipients by 30 June
Completing your Working From Home diary, and documenting all related WFH costs as to apply the most tax effective method for when working out of your home office.
When it comes to your 2024 tax outcomes, don't leave things to chance. Get in contact with us at DGF Advisory, so you can see our future-focus come to life and generate real results for your and your business.
Who is DGF Advisory?
DGF Advisory are Chartered Accountants and Business Advisors, with expertise and knowledge stemming from 18 years within the public practice, being trusted Advisors to SME'S and their families from a wide range of industries.
Book a FREE Discovery session and let's chat today at dean@dgfadvisory.com.au
DGF Advisory
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