It’s tax time… well, pre-tax time! In the lead-up to the EOFY, tax planning becomes an even more important tool to understand and effectively minimise your tax obligations for the current financial year. This goes for us as advisors and you as taxpayers.
As we approach the 30th of June 2024, there are strategies you can put in place to assist with effective tax management, as well as considering your other compliance obligations – which I will go into more detail in this article. For instance, this is also a good time to consider your business’ performance for the year and any changes to cash flow management, structures, and general business activity.
Here is a quick list of items to review before 30 June:
- Instant asset write-off: the government has proposed a $20,000 instant asset write-off for businesses with a turnover below $10 million, but the legislation hasn’t been passed yet. It’s important to note that the rules might change since the legislation is still being finalised. However, if you aim to benefit from these concessions, make sure your assets are installed and ready for use by June 30, 2024.
- Concessional contributions: personal contributions can be made to provide an additional tax deduction for individuals. For the fiscal year 2024, the cap for such contributions is $27,500.
- Carry-forward concessional contributions: in the same lens, if an individual meets specific eligibility criteria, there are additional contributions that can be “carried forward” from previous years. These can be utilised to make larger payments into your superannuation fund, for which you can claim a tax deduction.
- Debtors: Review any outstanding debts from previous periods and assess their likelihood of being recovered. If you determine that a debt is unlikely to be recovered, it may be advisable to write it off as a bad debt. Doing so can offer both a tax deduction and a GST credit.
- June quarter PAYG Instalment: most taxpayers pay instalments quarterly. Depending on whether you lodge a BAS or not, these payments are due either 28 days after the end of each quarter (if not lodging a BAS) or 1 month and 28 days after the end of each quarter (if lodging a BAS).
- Either way, the June quarter PAYG instalment is particularly significant because if your advisor has prepared tax planning estimates, they can estimate your net tax liability (after instalments). This presents an opportunity to adjust your June instalment if you wish to pre-pay some of the net liability or a receive a refund if you’ve overpaid.
- This is a great tool to help manage cash flow from tax obligations in the short and medium term!
At Hoffman Kelly, we emphasise the importance of tax planning, as it not only ensures that there are no ‘big surprises’ during tax compliance preparation after 30th of June but also ensures more intricate compliance matters like trust distribution resolutions, dividend issuance, Div7A management, intergroup loans, and reconciliations, among others. These items are more nuanced, and we recommend discussing them further with your advisor.
One common example of a more complex compliance item that we see is Division 7A. This provision of tax legislation often arises within family groups that include a company in their structure. For instance, let’s consider Bob, who is the Director of Bob’s Building Pty Ltd (BBPL). If BBPL has $10,000 in its bank account and on June 1, 2023, Bob transfers $5,000 to his personal bank account to purchase a jetski, this transaction is classified as a loan from the company. Such transfers trigger a series of subsequent events.
- The first is that Bob has until the lodgement date of BBPL’s 2023 tax return to repay that loan;
- If the $5,000 is not repaid, Bob then triggers a Division 7A loan between himself and BBPL;
- Following this, whilst completing a tax planning exercise, Bob’s advisor has provided Bob with a Div7A loan agreement that needs to be signed on the day the loan becomes a Div7A loan;
- Bob must now make repayments to BPPL over 7 years plus interest to pay down the $5,000 loan.
Whilst the example above is quite simple, there are many other conditions (or “T&Cs”) that need to be considered when managing Div7A. Given the cash flow impact and compliance requirements, tax planning is a perfect opportunity for you to discuss with your advisor how best to manage these loans.
Expert Advice
Navigating tax preparation on your own can be overwhelming. Our advisors are equipped to guide you through these complexities and develop tailored strategies to navigate tax obligations effectively. If you’re seeking expert advice ahead of this EOFY, don’t hesitate to contact the experts at Hoffman Kelly.
Book an obligation-free consultation today!
(Written by Adit Kapadia)