As we approach 30 June 2024 now is the best time to review the financial position of the business and yourself and see if there are any year-end planning opportunities available.
We have detailed below some common end-of-financial year planning tips that may assist.
If you have any questions as you prepare for 30 June, please do not hesitate to contact your friendly Account Manager at KeepingCo.
INCOME
Revenue Recognition – You may be able to defer revenue from the 2024 year to the 2025 year if income has been received in advance. You may also be able to bring forward sales into the 2024 year, where work had been completed but not invoiced until the 202 5financial year.
Deferral of Revenue – You may be able to defer sales from the 2024 year to the 2025 year under certain circumstances, again where it can be demonstrated the work has not yet been completed in full in the 2024 year.
Construction Contracts – The ATO allows construction contract revenue to be recognized under various methods and may impact when the revenue is taxable. The application of the different methods must be consistently applied.
Interest and Dividends – Interest income is generally booked as revenue when received. If you have received a loan from a related company or trust you should consider whether a Division 7A dividend is likely to be paid.
Personal Services Income (PSI) or Personal Services Business (PSB) – If you provide personal services yourself through a company or trust it is possible that you have derived PSI or PSB and any profits may be required to be attributed to you personally or you may be limited to the type of tax deductions you can claim.
Market Rate Transactions – Intercompany – If you have related entities dealing with each other you should ensure that transactions between the entities are recorded and are at market values, especially where there is no income tax consolidation.
EXPENSES
Deductibility – You should check whether any expenses incurred during the year may not be deductible such as personal, legal or expenses of a capital nature.
Super Payment for June 2024 Quarter Deductible – Make sure all super payments are made and received by the Super Fund before 30 June to ensure the contribution is tax deductible in the 2024 financial year.
Super Guarantee Increases! – The superannuation you must pay in addition to your employee’s wages goes up to 11.5% from 1 July 2024. You will need to consider the impact of this increase on your business if the contracts for your employees are wages + super.
If your employee contracts are inclusive of super you will need to consider the impact of this increase on your employee’s take home pay as this will now decrease by 0.5%.
Bad Debts – If you write off doubtful debts before 30 June you will be entitled to a tax deduction. You should consider whether you have made all necessary attempts to collect before writing off as any subsequent collections will be considered taxable income.
Stocktake – You should perform a stock take to ensure the correct gross profit is being recorded and taxed. If you need to do a stocktake you are able to value your inventory at cost price, market selling price or replacement value. If you are an SBE, if your inventory movements are under $5,000 each year you are not required to perform a stock take.
Employee Bonuses or Director Fees – If you are paying bonuses or Director Fees you should ensure that you are committed to paying them before 30 June and some documentation should be kept for the bonuses and a resolution for the Director Fees.
Prepayments – As an SBE, prepayments that have a period prepaid of 12 months or less are entitled to an immediate deduction.
Motor Vehicle – If you are planning on claiming motor vehicle expenses you will need to ensure you have your log book completed for 12 weeks with the appropriate business/personal use percentages noted. If your log book is more than 5 years old or your pattern of travel has changed materially, you will need to update the logbook.
COMPANIES
Company Tax Rate Reduction – Base rate entity company tax rate will remain at 25%.
Declare dividends to pay any outstanding shareholder loan accounts – If your company has advanced funds to a shareholder or related party, paid expenses or allowed a shareholder or other related party to use assets owned by the company, then this can be treated as a taxable dividend. The regulators expect that top up tax (if any applies) should be paid by shareholders at their marginal tax rate once they have access to these profits. This is unless a complying loan agreement is in place.
If you have any shareholder loan accounts from prior years that were placed under complying loan agreements, the minimum loan repayments need to be made by 30 June 2024. It may be necessary for the company to declare dividends before 30 June 2024 to make these loan repayments.
Division 7A Loans – You should review loans before year end to ensure you don’t accidentally trigger a debt forgiveness, deemed dividend etc and arrange a complying loan agreement with the entity.
Payment of Dividends – If you plan to pay a dividend or have paid a dividend you need to ensure the payment is allowable as well as documenting it via a Minute.
Directors at risk of personal liability for company’s GST liabilities – The Director penalty regime enables the ATO to recover amounts owed by a company for unpaid PAYG withholding amounts, GST, WET, LCT and superannuation guarantee liabilities from the Directors or former Directors.
Directors, regardless of whether they are passively or actively involved, are at risk of being held personally liable for a large portion of a company’s estimated liabilities.
Directors are under a general obligation to ensure the company either satisfies its tax liabilities, or recognising the company may be insolvent, goes into administration or is wound up. Resigning as a Director after the event has no impact as the obligation attaches to the individual Directors equally. If the Commissioner issues a penalty notice, the Director becomes personally liable at that point. There is a grace period for new Directors, but they can become liable for obligations that arose before they became a director.
Strict time frames are in place for the issuing of notices by the Commissioner and the required responses from the individual. If you receive a director penalty notice, or if you are concerned that you are at risk of receiving a notice, please contact us immediately.
Raise management fees between entities by June 30 – Where management fees are charged between related entities, make sure that the charges have been raised by 30 June. Where management charges are made, make sure they are commercially reasonable and documentation is in place to support the transactions. If any transactions are undertaken with international related parties, then the transfer pricing rules need to be considered and the ATO’s documentation expectations will be much greater. This is an area under increased scrutiny.
TRUSTS
Trustee Resolutions – You should prepare a resolution or distribution plan before 30 June 2024 (or earlier) in accordance with your Trust Deed, accounting for all income types such as dividends, other income, and capital gains. This will help to ensure income is not taxed unnecessarily at 47%.
Download a copy of the Sample Discretionary Trust Minute regarding the 2024 Distribution’s from the Resources section of our website. This template should be used as a guide only.
Meaning of Income – You should consider the definition of Income as per your Trust Deed to ensure your resolutions are effective in the distributions.
Trust to Company Distributions – If these exist, you need to consider Division 7A and whether all payments have actually been made to avoid any Unpaid Present Entitlements (UPE).
Family Trust Elections – You should review FTE requirements to ensure that franking credits can flow through and protect bad debts and carry forward losses.
Trust Deed – Consider reviewing your Deed to ensure it is appropriate for the proposed distributions.
Section 100A – Be sure to review your distributions with respect to the recent ATO guidelines.
CAPITAL GAINS
Timing of CGT Events – You should consider the timing of a capital gains tax event in respect to which financial year the event falls into noting that contract dates and not settlement dates are generally when the event occurs.
Small Business CGT – Consider your ability to reduce any capital gains by applying available CGT concessions.
CGT Discount – Where assets are held for more than 1 year, they may be entitled to a 50% discount on any CGT payable.
INDIVIDUALS
From 1 July 2024, the tax rate for individuals will change to the following:
- The 19c tax rate will be reduced to 16c.
- The 32.5c tax rate will be reduced to 30c.
- The threshold for the 37c tax rate will increase from $120,000 to $135,000.
- The threshold for the 45c tax rate will increase from $180,000 to $190,000.
Super Contributions – The concessional cap for the 2024 year is $27,500 for persons of all ages. Remember that your 11.5% SGC also contributes towards this cap. The non-concessional cap is $110,000.
If your superannuation balance is less than $500,000 and you have made concessional contributions of less than the concessional contributions cap of $27,500, you may be able to make additional concessional contributions in subsequent financial years for any unused amounts. Unused cap amounts can be carried forward for up to 5 years starting from 2019.
Work-Related Deductions – In order to claim a deduction, you need to have incurred the expenditure yourself and not been reimbursed by your employer or business. The expense must be directly related to earning your income and you must keep copies of tax invoices or receipts to substantiate the claims.
The ATO is also paying close attention to taxpayers claiming the $300 work-related deduction and $150 work-related clothing deductions [under which no substantiation is required] without proper explanation or diary evidence. Claims without sufficient evidence may be denied.
Home Based Business – In general, if your business is a home-based business, you should be able to claim both occupancy and running expenses. However, if you operate through a company or trust, the ATO’s preference is that there should be a rental agreement in place between the entity and the property owner.
If there is a genuine rental contract, then the property owner should recognise the rental income and should then seek to claim a reasonable portion of their expenses against the rental income. The business entity should generally be able to claim a deduction for the rent that is being paid to the owner of the property.
Without a genuine rental contract, it is difficult for the business to claim a deduction for any of the expenses relating to the portion of the property that it uses in the business.
The ATO will be looking for a separate, identifiable area of the home used for business. You need to consider any Capital Gains Tax implications of claiming a business use of operating your business from home.
Rental Property – You can no longer claim the costs of travelling to and inspecting your property as well as depreciation for 2nd hand plant and equipment.
Income from Sharing Economy – The ATO has data matching technology for income earned from Uber, Airbnb, Airtasker etc and will be closely looking at omitted income from these sources.
You may also be able to claim a deduction for the proportion of expenses used to earn the income, such as car, property and tools. All Uber drivers should be registered for GST.
Cents per kms change for work-related car expenses – The rate at which work-related car expenses can be claimed using the cents per kilometre method is $0.85 cents per kilometre. Using this method, a maximum of 5,000 business kilometres can be claimed per year per car.
ATO Focus Areas –
- Work-related expenses if greater than the industry average
- Work from Home Expenses
- Non-commercial rental income from holiday homes
- Rental property deductions
- Interest deductions from private portions of loans
- Data matching for cryptocurrency and share transfers
- GST registrations when not carrying on a business
Important dates for the calendar:
- 21 Jun – May activity statements due
- 14 Jun – Xero cutoff for 2024FY super deductions
- 26 Jun – 2024 Fringe Benefits Tax returns due
- 30 Jun – super contributions received by now for a current year deduction
- 5 Jul – ATO starts processing 2024 tax returns
- 16 Jul – ATO starts issuing 2024 refunds
- 28 Jul – Jun activity statement due if not using BAS Agent
At Keeping Company, we’re not just accountants, we’re business people too. With our counsel, your business can reach its full potential.
We have a team of experts; Cloud Accountants, Business Advisors, Finance Specialists working together and ready to help, contact us today.
For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.