8 Things Every Business Owner Needs To Do Before 30 June
"I love paying tax" said no one, EVER! With the end of the 2024 financial year less than three months away, here are eight things every business owner needs to look at before the new year begins:
1. Estimate current year tax payable for your business and yourself
I’ve never met a person who loves to get a surprise tax bill when they leave preparing their tax to the due date in May of the following tax year. The best way to avoid any surprises is to calculate your expected tax bill prior to the end of the financial year, so that you know exactly where you stand and have time to put your tax minimisation strategies in place.
Need to know:
Company tax rate for base rate entities is 25%.
Individual marginal rates of tax are:
$0 - $18,200 – Nil
$18,201 to $45,000 – 19%
$45,001 to $120,000 – 32.5%
$120,001 to $180,000 – 37%
$180,001 and above – 45%
Plus 2% for the Medicare Levy
2. Review your super contributions
One of the most common tax planning tricks in the book is to make additional super contributions before 30 June. Super contributions are deducted either through your business or personal return are taxed at 15%. This represents a tax saving of 11% if doing through a company under a salary sacrifice arrangement or as much as 32% for an individual on the highest marginal tax rate.
Need to know:
Your super fund must have received your super contribution and allocated it to your member account before 30 June.
If you are claiming the tax deduction in your personal return you need to lodge a notice of intention to claim a tax deduction with your super fund.
For the 2024 financial year the cap for concessional contributions is $27,500.
If your total super balance is less than $500,000 you can bring forward any unused concessional caps for up to 5 years.
You can find the balance of any unused caps on your myGov account or ask your accountant.
3. Take advantage of the instant asset write-off
If you are thinking of investing in capital to expand your business, now could be the time to do it. The instant asset threshold for the 2023-24 financial year is $20,000. A deduction is available for both new and second-hand depreciating assets are either first used or both installed and ready for use by 30 June 2024. Examples of the types of assets that are eligible are:
tools and equipment (for example, electric sanders and saws)
computers, laptops and tablets
office furniture (freestanding)
office equipment (for example, coffee machines)
Need to know:
There are excluded assets, including:
assets that are leased out, or expected to be leased out, for more than 50% of the time on a depreciating asset lease
assets you allocated to a low-value assets (pool) before using the simplified depreciation rules
horticultural plants including grapevines
software allocated to a software development pool (but not other software)
assets used in your research and development (R&D) activities
capital works, including buildings and structural improvements
4. Review the need to for any other tax deductible expenditure
Small businesses (aggregated turnover of $10 million or less) can claim a tax deduction for prepaid expenditure for any business expense with a service period of 12 months or less. This means that you can choose to pay for your rent, bank interest etc for the next 12 months (or a lesser period) and claim a tax deduction in this financial year, so long as it is paid by 30 June. You may also choose to bring forward a large stationery order, or payment of subscriptions that are usually due in the early part of the new financial year, or there may be a conference that you wish to attend later in the year that you can register for now. The possibilities are endless.
Need to know:
To claim a tax deduction for business expenses you must have records to substantiate your claims.
If any expenses have a personal component you need to keep records to show how you calculated the business use proportion of the expense.
Records include receipts, tax invoices, diaries to record cash expenses (small amounts only), motor vehicle log books, travel diaries, loan documents.
You can find out more in our blog Can I claim that? A guide to tax deductible business costs.
However if you are earning personal services income tax deductions are limited to what an employee can claim. Our blog What is personal services income and do I earn any? contains more.
5. Review invoicing
Most small businesses pay tax on a cash basis. If you are a business where your customers pay on terms consider deferring invoicing to 1 July so that the collection of the income falls into the next financial year, also deferring the tax payable on that income.
6. Review the balance of director loan accounts
The ATO deems an unfranked dividend on any loans made from a company to a director that has not been repaid in full by the time the company tax return is lodged OR a complying loan agreement put in place (called a Division 7A loan agreement). A loan can be in the form of a cash transfer to a personal bank account or the payment of a personal expense from company funds.
The cleanest way of dealing with these loans is not to have any loans to directors in the accounts at 30 June, but with the resultant tax it may not be feasible to do so. Estimating the tax payable, prior to 30 June, on any payments is critical in deciding whether to repay the loan in full or enter into a Division 7A loan agreement.
Need to know:
Check out our blog 5 ways to pay yourself from your company for options on how you can repay the loan and avoid this issue in the future.
There are times when a loan from your company can work in your favour. Read our case study Making a loan from your company work for you.
7. Review retained earnings
If you have read our blog The problem with leaving profits in your company, you will understand why we aren't big fans of leaving profits in companies unless it is for working capital or there is a plan to invest in the growth of the business. The end of the financial year is the perfect time to review the balance of your retained earnings and pay out a director's fee, bonus or dividend to reduce the balance sitting in the company accounts. If you are unsure what type of payment you want to make you might like to read our blog Dividend, bonus or directors fee, which is better.
Need to know:
If your company earns personal services income or is a personal services business, profits will need to be paid out of the company. Read our blogs What is personal services income and do I earn any? and What is a personal services business and is my business one?
If your business is conducted through a discretionary trust 100% of the profit needs to be distributed to the beneficiaries otherwise tax is payable by the trustee at the rate of 45%. A minute or resolution must be passed by the trustee/s prior to 30 June to avoid all income being taxed at 45%.
8. Get ready for the new financial year
The end of one financial year and the beginning of the new is the ideal time to get your business planning in order. Set your strategic goals and put your budget in place. There is a saying, "what gets measured gets managed". A budget is the starting point for business management. It sets the expectation. Without a doubt the real numbers will vary from the budget, but the important part of the exercise is understanding why and making the necessary adjustments to your strategic plan to get things back on track again. Our case study How knowing your numbers can save the day is the perfect example why having a budget is important.
Need to know:
If you need help getting your strategic plan together and ensuring that you will stick to it, our book review Strategy and the fat smoker by David Maister may assist.
Final words
The starting point for any year end review is getting your bookkeeping up to date, projecting your financial data forward to 30 June and estimating your tax payable BEFORE beginning to look at any of the strategies in points 2 to 7. This needs to be done well in advance of 30 June to give yourself time to implement your desired strategies otherwise you could miss out on a substantial tax deduction and pay more tax than you otherwise should.
It’s also very important to note it’s not worth spending money just for the sake of getting a tax deduction and reducing your tax bill. If you don't need something, don't spend the money. You will always be better off paying a dollar in tax rather than spending almost four dollars to save a dollar of tax.
Finally, work with your accountant to work out how you can best take advantage of what is on offer this tax time.
If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.