DFK Gooding Partners

May 13, 2024

As we approach the end of financial year, we are pleased to present our Tax Planning Tips for FY2023-24. This article covers selected areas of interest for small businesses and individuals with updated guidance around Trusts and benchmark interest rates.

As with any planning, the process can be time intensive, so ensure you have allocated enough time to focus on the pertinent tax issues and areas for your business, and/or personal circumstances. As always, should you require assistance, please contact us.

Article Contents

Tax Planning: Key takeouts
Tax Planning: Income

  1. Capital Gains
  2. Sales
  3. Averaging Income
  4. Personal Services Income (PSI)
  5. Dividends/distributions
  6. Cryptocurrency
  7. FX Gains/Losses

Tax Planning: Deductions

  1. Accounts Receivable
  2. Depreciation/Immediate Write-Offs/Building Write offs
  3. Tax Losses
  4. Prepayments
  5. Superannuation
  6. Staff Bonuses
  7. Stock on Hand
  8. Farm Management Deposits (“FMD”)

Tax Planning: Additional Considerations

  1. Professional Firm Profit Allocations
  2. Division 7A Deemed Dividend Provisions
  3. Trusts

Key takeouts for tax planning FY2023-24

Trust complexities continue to evolve

As we highlighted last year, trusts continue to be an area of increasing complexity and ATO focus. Section 100A continues to be on the radar for trust distributions to low-income beneficiaries. With sub-trusts no longer accepted by the ATO, unpaid distributions to companies will require complying 7-year loan agreements that are subject to minimum repayments and interest rates almost doubled from prior years (see point 2 below). The use of trusts for income-splitting, where personal services income is involved (for example in business structures that are exempt from the PSI provisions) are also being targeted by the ATO in their guidance on professional firms profit allocations.

In addition to the above, various court cases have highlighted the importance of properly understanding and following the terms of the trust deed.

Benchmark interest rates

For FY2023-24, the benchmark interest rate for Division 7A loans has substantially increased to 8.27% (up from 4.77% for FY 2022-23). As a result, clients may want to consider bringing forward repayments to minimise future interest charges, particularly where interest on loans is non-deductible.

Similarly, the benchmark interest rate for employee loans to prevent FBT arising is 8.77% for the year ending 31 March 2025. These higher interest costs should be factored into any decisions regarding loans to directors or employees.

Temporary Full Expensing & Small Business measures

As Temporary Full Expensing ended on 30 June 2023, businesses will need to identify and depreciate capital purchases of over $100 made during the year.

But if you are a small business entity with aggregated turnover below $50 million, a new instant asset write-off may apply from 1 July 2023 for assets costing up to $30,000 and installed ready for use by 30 June 2024. Legislation is still before the House of Representatives to approve amendments from the Senate. In the same bill before Parliament is the Small Business Energy Incentive to apply for the 2023-24 financial year.

If the legislation is passed, business will need to act quickly to take advantage of the incentives for any additional new assets or upgrades by 30 June 2024.

General Anti-Avoidance Provisions (Part IVA)

With any tax planning, it is important to be mindful of the general anti-avoidance provisions that target schemes undertaken for the sole or dominant purpose of obtaining a tax benefit (i.e. tax avoidance). Part IVA gives the ATO the power to cancel tax benefits and apply significant penalties. Where there is a genuine commercial purpose, Part IVA should generally not apply.

Tax planning: Income

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.

Tax planning: Deductions

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.

Tax planning: Additional Considerations

1. Professional Firm Profit Allocations

The ATO’s updated guidance on professional firm profit allocations is applicable for the 2023 financial year. Any business with individual professional practitioners should consider the guidance and risk assessment framework, particularly where income is distributed to associated entities of the individual practitioners.

2. Division 7A Deemed Dividend Provisions

  • Directors and shareholders with loans owing to companies should consider the option of paying a dividend to clear the loan at year end or entering into a loan arrangement.
  • In relation to any existing Division 7A loans to companies, taxpayers should ensure that minimum yearly repayments are made prior to the end of the financial year.
  • In relation to any existing sub-trust arrangements, taxpayers should ensure that the accrued interest has been paid by the trust tax return lodgement date.

3. Trusts

  • Annual income distributions are required to be resolved by the trustee before the end of the financial year.
  • Trustees should ensure they are fulfilling their trustee fiduciary duties and consider all beneficiaries when deciding on income distributions.
  • Consider recent ATO guidance on distributions to adult children when planning trust distributions. Where someone other than the beneficiary benefits from the distribution, the reimbursement agreement provisions in section 100A could apply.
  • The gifting of unpaid present entitlements could also attract section 100A.
  • Ensure any unpaid present entitlements to companies are paid or placed onto complying Division 7A loan agreements.
  • If the trust has made a Family Trust or Interposed Entity Election, ensure that distributions are only made to members of the family group to avoid onerous family trust distributions tax.

Can we assist with your tax planning requirements?

Complete the quick contact form below with your details and one of our team will be in touch to discuss your requirements. Alternatively, you can call us (08) 9327 1777 or email info@dfkgpca.com.au.

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