EOFY: Tax Planning Tips for 2023-24

1. Capital Gains

• Defer triggering capital gains until after the end of the financial year. Capital gains on the sale of assets generally arise on the contract date, rather than settlement date.
• If selling your residence, review whether a full or partial exemption is available under the main residence exemption. If moving overseas, be aware that the exemption is unavailable if you are a foreign resident at the time of sale (except in very limited circumstances).
• Consider if any capital gains tax rollovers are available, such as scrip for scrip rollover relief on the disposal of shares in exchange for shares in another company.
• Where a business is involved, consider the small business capital gains tax exemptions, and obtain advice if necessary.
• Realise capital losses on shares (especially where capital gains exist in the same income year), if it is unlikely that the market value will recover. (If you intend to immediately reacquire the shares you may attract the general anti-avoidance provisions.)
• Defer the sale of assets until 12 month holding period is met to access the general 50% discount for individuals and trusts.

2. Sales

• Defer sales contracts until after the end of the financial year, where it is possible and reasonable to do so.
• Capitalise income received in advance and recognise over the life of the agreement, where certain requirements are met.
• Where timing of sales income is based on issuing invoices, consider issuing invoices after the end of the financial year (noting that the other party may miss out on a tax deduction).

3. Averaging Income

• Where income for this income year is higher than average, consider income averaging.
• Applicable to all farmers, sportsmen and artists.

4. Personal Services Income

• If receiving income from your personal efforts or skills, otherwise known as ‘Personal Services Income’ (PSI), consider whether the Personal Services Business (PSB) rules are satisfied to be treated as a business rather than as an employee for tax purposes, where the PSI rules apply. If you’re unsure, read through our recent PSI article.

5. Dividends/Distributions

• If your trust has made a family trust election, ensure that distributions are only made to beneficiaries within the ‘family group’ of the specified individual. Contact us if you are unsure which individuals and entities are included in the definition of family group.
• Be aware of new legislation limiting franking credits on dividends funded through capital raisings.
• Ensure the 45-day holding period rule is satisfied to benefit from franking credits.
• Declare franked dividends where shareholders on low marginal tax rates can benefit from refund of franking credits, notwithstanding that anti-avoidance provisions can apply to franking credit streaming.
• Consider ATO guidance on distributions to adult children when planning trust distributions (section 100A).

6. Cryptocurrency

• Defer disposing of cryptocurrency that would result in a capital gain, where you are a cryptocurrency investor, rather than trader.
• Capital gains may be triggered when cryptocurrency is converted from one coin to another or used to purchase goods or services.

7. FX Gains/Losses

• Consider the tax consequences of disposing of foreign currency or repaying foreign currency denominated loans and realising foreign exchange gains/losses prior to the end of the income year.
• Consider if a re-translation election or limited balance election should be made on foreign currency denominated bank accounts.

1. Accounts Receivable

• Review trade debtors listing to identify unrecoverable amounts and record the bad debts prior to year-end. Directors should take reasonable steps to recover the debts and make a commercial judgement based on all available information prior to writing off the debts. This should be supported by a directors resolution made before year-end.

2. Depreciation/Immediate Write-Offs/Building Write offs

• Ensure new assets are installed ready for use by 30 June 2024 to take advantage of $30,000 instant asset write-off (pending legislation before Parliament).
• If moving premises, ensure the old fit-out is demolished prior to ending the lease to claim a write-off for leasehold improvements.
• Obtain a quantity surveyors report to maximise building write-offs, including for rental properties.
• Identify obsolete items in the depreciation schedule that can be scrapped/written off.
• Review depreciation rates to ensure they are still adequate and reflective of the useful life of the assets.

3. Loss Carry Back

• Eligible companies can claim a refundable tax offset if they have incurred recent tax losses and had tax liabilities in earlier income years going back to the 2019 income year. Note, 2023 is the last income year to claim the loss carry-back.
• Losses incurred because of claiming Temporary Full Expensing of Depreciating Assets may be eligible for the loss carry back.
• The franking account will be debited by refunds received from the loss carry back, therefore it may affect the ability to pay franked dividends, which may be important for managing Division 7A loan repayments.

4. Tax Losses

• Where there are carried forward losses in a company or trust, consider if the relevant loss provisions are satisfied to utilise the losses to offset taxable income.
• Changes in more than 50% of the underlying ownership may cause the more onerous same business test to apply.
• For individuals carrying on a business with losses, consider whether the non-commercial loss rules apply to prevent offsetting small business losses against other income.

5. Prepayments

• Small and medium business entities and non-business individuals are entitled to claim the full amount of the prepayment in the year in which the payment is incurred, provided the service is completed within 12 months.
• Prepaid wages are excluded from the prepayments rules and are only deductible in the year in which the expense is incurred.

6. Superannuation

• Ensure all employee superannuation contributions are paid by 30 June (and actually banked into the superfund’s bank account). If not, the deduction is not allowable until the following income year.
• Superannuation guarantee paid from 1 July 2023 will also be subject to the increased rate of 11%.
• You may be entitled for a deduction for personal superannuation contributions paid from after-tax income. The concessional contributions cap for the 2023 income year is $27,500, which includes your employer contributions. If you have not contributed up to the limit in previous years, you may be entitled to carry forward unused contributions cap to increase your deductible contributions.
• Consider a reserving strategy to bring forward next year’s deductible super contributions. This means two year’s worth of personal contributions can be deducted in the one year for tax purposes, while counting towards this year’s and next year’s contributions cap.
• Beware that concessional superannuation contributions may be subject to an additional 15% tax if your total adjusted taxable income is over $250,000.
• Consider the availability of the government’s superannuation co-contribution. The government will provide up to $500 for a $1,000 contribution made by a low-income individual if they receive employment or business income and earn less than $43,445 per year (the government stops making co-contributions at $58,445).

7. Staff Bonuses

• Staff and director bonuses are required to be approved for payment by 30 June to be deductible in the same income year. This should be evidenced by a directors’ resolution.

8. Stock on Hand

• Can be valued at the lower of its cost, market selling value, or replacement value.
• Consider writing off obsolete stock or revaluing slow-moving stock.
• Ensure a stock take is completed at the end of the financial year.

9. Farm Management Deposits (“FMD”)

• Individuals receiving primary production income can deposit income into an FMD and receive a deduction for the full amount deposited, however the income is assessable on withdrawal.