EOFY 2023-2024

20 June 2024

Ways to get ready for tax time

The end of the financial year on 30 June 2024 is fast approaching, so here’s a quick checklist to help you prepare in advance and maximise your tax time benefits.

Understand your sources of income

Income can come from all sorts of areas.

  • Interest earned from bank accounts
  • Dividends received from shares
  • Employee share options
  • Capital gains received from the sale of an asset
  • Rental income from an investment property
  • Redundancy payments
  • Any taxable Centrelink payments

Deductions

Undoubtedly, it is the most contentious area of tax returns. This could include expenses incurred and not reimbursed, which may reduce tax liability. Some common deductions are:

  • Work-related expenses
  • Home office expenses
  • Self-education and professional development
  • Registrations, subscriptions, memberships
  • Vehicle and travel expenses
  • Protective clothing, laundry and dry-cleaning expenses
  • Tools and equipment, including depreciable assets (such as laptops)
  • Accountant or tax agent fees
  • Personal super contributions
  • Investment income expenses
  • Income protection insurance premiums

Offset capital gains against capital losses

Disposal of shares or any other form of investment may cause capital gain. You may consider disposing of any assets you know are trading at a loss. The resulting capital losses can be offset against the capital gain. Don’t forget the upcoming tax changes may mean that from 1 July, you’re paying less tax, which might affect when you decide to divest any investments and incur a capital gain – this year or next.

Also, be careful if you sell shares at a loss and buy them back in the new tax year. The ATO takes a hard line against so-called “wash sales”. This refers to the sale of an asset before the year-end and the purchase of a substantially identical asset immediately after the year-end. The ATO regard the purchase and the sale as effectively the same asset and has issued a Tax Ruling, which states that they can apply the anti-avoidance provisions to cancel any tax benefits and apply penalties.

Document your donations

It’s great to give to your charity of choice, but don’t forget your potential tax deductions. So, hang on to your receipts and record your donations. Ensure that the charity is a deductible gift recipient.

Understand the Medicare levy

If you earn over a certain amount, you must pay the 2% Medicare levy to help fund the private health system. But there’s a potential rebate available if you are a high income earner and take out private health insurance. So, you might want to work out your best approach, particularly if you have earned more than last year.

Get your retirement income right

If you’re retired, the good news is you can earn a higher income level before you start paying taxes. But it can depend on your age and the type of income you receive, so it’s a good idea to get across all the rules with your accountant.

Get your investment property affairs in order

If you’re renting a property out, you’ll probably be aware that there are plenty of tax deductions you can claim for things like depreciation, the cost of repair and maintenance, interest costs on your loan and fees that you pay for a real estate agent to manage your property. As usual, the rules can (and do) change, so check all the latest expenses you can claim here.

Home Office

If you are employed but work from home, occasionally or all the time, you are entitled to deductions for costs arising from working at home. The expenses that you can claim include:

  • Heating, cooling and lighting
  • Cleaning costs
  • Decline in value (depreciation) of home office furniture and fittings, office equipment and computers (for items over $300)
  • Computer consumables, stationery, telephone and internet costs
  • Items of capital equipment (such as furniture, computers and associated hardware and software) which cost less than $300 can be written off in full immediately

With many retailers running End of Financial Year specials, any purchases you make now can be deducted from this year’s tax return, so from a cash flow point of view, you can minimise the time between purchase and tax deduction!

Alternatively, you can claim the ATO’s concessional 67 cents per hour fixed rate to include several working-from-home deductions in one simple, easy-to-use amount. The rate includes the additional running expenses you incur for:

  • home and mobile internet or data expenses
  • mobile and home phone usage expenses
  • electricity and gas (energy expenses) for heating, cooling and lighting
  • stationery and computer consumables, such as printer ink and paper.

To use the fixed rate, you must have kept a record of all your working from-home hours for the entire year (e.g., a diary, timesheets or rosters), and you must have one item of substantiation for each item claimed (e.g., a heating bill).

The fixed-rate does not include deductions for work-related use of technology and office furniture such as chairs, desks, computers, bookshelves or repairs to these items. Cleaning costs are also excluded. These costs can be claimed separately, so remember to keep those receipts.

Car expenses

If you use the log-book method, now is the time to check that your logbook is current and that you have all the receipts, invoices and journey records you need to calculate and substantiate your claim. Using the cents per kilometre method, you will still need a record of all work-related journeys during the year.

Mobile Phone

If you used your mobile phone for work purposes, you could claim a deduction for the business-related use. Ensure you have compiled your phone bills and have kept a log of your business/personal use over four weeks. That percentage can then be applied to the whole year.

It’s important to remember that you can’t claim a separate deduction for mobile phones if you have claimed the 67 cent/hour fixed rate for working from home.

Prepay expenses

You can claim a tax deduction this year for expenses which wholly or partly relate to next year. So, if you have some spare cash, consider paying things like union fees, professional subscriptions and annual insurance premiums in advance to accelerate the deduction.

If you have a geared asset like a rental property and have capital to inject, some lenders may allow you to prepay 12 months of interest on your investment loan. This will effectively bring forward your tax deduction into the current year and could help offset any capital gains or additional income you’ve earned.

Make a tax-deductible super contribution

If you have some spare cash, consider contributing to your super fund. Suppose your contributions (including those made on your behalf by your employer) do not exceed $27,500. Your cap may be higher if unused concessional contribution cap amounts are unused. This can be a great way to boost your retirement savings and claim a tax deduction for the personal contribution.

Co-contributions: Low or middle-income earners who make personal super contributions may receive a government co-contribution, up to a maximum of $500.

Employee salary sacrifice: an agreement with your employer to give up part of your salary (thereby reducing your taxable income) and invest it into super to boost your retirement savings.

Spouse contributions: A tax rebate (up to $540) may be available for after-tax contributions to super on behalf of a low-income spouse.

Timing: Contributions must be in your super account before 30 June, or they will count against the next financial year’s limits.

If you’re between 67-74, you won’t need to satisfy the ‘work test’ before making non-concessional contributions. However, you’ll still need to satisfy the work test requirement if you want to claim a tax deduction on your personal contribution.

The payment must be made by June 30th, and you must advise your super by providing a valid ‘notice of intent to claim a deduction for personal superannuation contributions’ to your super fund and have received written acknowledgement.


Small business Initiative during EOFY

Checklist of to-do before year-end

  • Review year-to-date figures to determine likely tax liability
  • Consider strategies for management of the likely tax position
  • Determine dividends to be declared for companies
  • Prepare distribution minutes for trusts
  • Consider owners’ remuneration and optimise tax outcome
  • Small Business Entities – cash vs. accruals/prepayments/depreciation
  • Make superannuation payments as they are only deductible when paid
  • Debtor analysis – consider bad debts/timing of invoicing
  • Creditor analysis – bring forward expenses to get a tax deduction
  • Stocktake – undertake a stock take and consider obsolete stock
  • Plant and equipment – consider any new equipment needed and ensure it is available and ready for use before June 30
  • Fringe Benefits Tax – if FBT return is not lodged, consider a private portion of expenses and GST adjustments
  • Capital Gains Tax – consider the sale of any investments and prepare likely tax calculations

Asset write off

If so, look to utilise the “instant asset write-off” measure. Provided your business has a turnover of less than $10 million, this allows you to claim an immediate tax deduction for all capital purchases costing less than $20,000 rather than depreciating the cost over several years, as used to happen.

This is great for tech items such as computers, tablets and phones, as well as tools and equipment for tradies, office furniture and even motor vehicles (though any cars will probably need to be second-hand, given the $20,000 limit!).

Remember, besides purchasing, the asset you acquire must be used or available in your business. So, realistically, you need to get the item delivered and installed by 11:59 PM on 30 June 2024 to secure the tax deduction. If you order something now for delivery and installation in July, you won’t be able to claim the deduction this tax year. Note that the instant asset write measure will also be available in 2025.

Maximise your tax-deductible debt

Loans for private purposes are not tax deductible. Review whether refinance options may be available to split your deductible vs non-deductible debt. Determine whether loan repayments can be restructured, as the new rules limit the deductions available against vacant land.

Write off bad debts

If debtors are not recoverable after all action has been taken, write off the bad debt before June 30 to account for the expense. Ensure GST is adjusted.

Write off slow-moving or obsolete stock

Review your stock holding. If the market value is lower than the cost of the stock, you can obtain a deduction for the difference.

Utilise unrealised capital losses

Ensure you take advantage of capital losses within your group. Consider preparing distribution minutes that use group losses.

Check depreciation rates on plants and equipment

Review depreciation schedules for any scrapped plant and equipment that can be written off. Review the effective lives of equipment and consider whether you can increase the depreciation rate.

Check your access to refundable franking credits

Look for opportunities before June 30 to access any refundable franking credits. Consider whether any loss entities could result in a flow of highly franked income, resulting in a refund.

Claim eligible research and development activities

When engaged in research and development activities, clearly document the activities and costs relating to those activities to take advantage of R&D Tax Offsets.

Plan for your tax position before June 30

Understand your options to reduce or defer tax payments. Plan your cash flow for tax instalments and the tax due on tax return lodgements. Identify opportunities to vary tax instalments and improve cash flow. Implement the tax planning measures listed above, as well as other savings.

Other considerations

  • Planning for one-off transactions – e.g. Business sales or purchases.
  • Self-managed Super Fund (SMSF) – do you have an SMSF? Consider the impact on the business.
  • Purchase of property or business premises.
  • Consider the relevance of existing accounting systems and consider new technology.


Practice Update April 2025

31 March 2025
A foreign entrepreneur’s guide to starting a business in Australia Starting a business as a foreign entrepreneur can be an exhilarating way to access new markets, diversify investment portfolios, and create fresh opportunities. Many countries around the globe provide pathways for non-residents and foreign nationals to register businesses. However, understanding different countries’ legal requirements, procedures, and opportunities is crucial for success. In this issue, we will navigate the process of establishing a business in Australia to help foreign entrepreneurs looking to register a company in Australia. Key takeaways Foreign entrepreneurs can fully own Australian businesses with no restrictions on ownership. Registered office and resident director requirements are key legal considerations. ABN and ACN are essential for business registration. The application process can be done online, simplifying the process for foreign entrepreneurs. Why register a business as a foreign entrepreneur? There are various reasons why a foreigner may want to register a company in another country. These reasons include expanding into a foreign market, taking advantage of favourable tax laws, leveraging local resources, or benefiting from business-friendly regulatory environments. Before registering, conducting thorough market research to assess whether establishing a business abroad aligns with your objectives is essential. Understanding the country’s political and economic climate, legal framework, and tax system will help ensure the success of your venture. The general process for registering a business as a foreign entrepreneur While the exact requirements may differ from country to country, some common steps apply to most jurisdictions when registering a company as a foreign entrepreneur: Choosing the business structure The first step is deciding on the appropriate business structure. The structure determines liability, taxation, and governance. Common types of business structure include: Sole proprietorship: A single-owner business where the entrepreneur has complete control and entire liability. Limited Liability Company (LLC): Offers liability protection to the owners, meaning their assets are not at risk. Corporation (Inc.): A more complex structure that can issue shares and offers limited liability to its shareholders. Different countries have varying rules regarding foreign ownership, so understanding the options available is essential before registering a company. Registering with local authorities Regardless of the jurisdiction, most countries require you to register your company with the relevant local authorities. This process typically includes submitting documents such as: Company name and business activities: You need to choose a unique company name that adheres to local naming regulations. Articles of incorporation: This document outlines the company’s structure, activities, and bylaws. Proof of identity : As a foreign entrepreneur, you will likely need to provide a passport and other identification documents. Proof of address: Many countries require a physical address for the business, which may be the address of a registered agent or office. Tax Identification Number (TIN) and bank accounts After registering the company, you will typically need to apply for a tax identification number (TIN), employer identification number (EIN), or equivalent, depending on the jurisdiction. This number is used for tax filing and reporting purposes. Opening a business bank account is another critical step. Some countries require a local bank account for business transactions, and you may need to visit the bank in person or appoint a local representative to help with the process. Complying with local regulations Depending on the type of business, specific licenses and permits may be required to operate legally. For example, food service, healthcare, or transportation companies may need specific licenses. Compliance with local labour laws and intellectual property protections may also be necessary. Appoint directors and shareholders To register a company, you’ll need to appoint at least one director who resides in Australia. The director will be responsible for ensuring the company meets its legal obligations. You will also need to appoint shareholders, who can be either individuals or corporations. For foreign entrepreneurs, the requirement for a resident director is one of the key challenges. If you don’t have a trusted individual in Australia to act as the director, you can engage a professional service to fulfil this role. This ensures your business remains compliant with local regulations. Choose a company name Next, you need to choose a company name. The name should reflect your business but must be unique and available for registration. You can check the availability of a name through the Australian Securities & Investments Commission (ASIC) website. Remember that the name must meet legal requirements and cannot be similar to an existing registered company. If you’re unsure, seeking professional advice is always a good move. Apply for an Australian Business Number (ABN) and Australian Company Number (ACN) Once you’ve selected your business structure and appointed your directors, it’s time to apply for an Australian Business Number (ABN) and an Australian Company Number (ACN). These are essential for running your business in Australia. ABN: This unique 11-digit number allows your business to interact with the Australian Taxation Office (ATO) and other government agencies. ACN: This 9-digit number is allocated to your company upon registration with ASIC and serves as your business’s unique identifier. You can easily apply for both numbers online through the Australian Business Register (ABR) and the ASIC websites. Register for Goods and Services Tax (GST) If your business expects to earn more than $75,000 in revenue annually, you must register for GST. This means your business will charge customers an additional 10% on goods and services. The GST registration threshold for non-profit organisations is higher at $150,000 annually. If your company is below these thresholds, registering for GST is optional, but registration becomes mandatory once it exceeds the limit. Set up a registered office Every Australian company must have a registered office in Australia. This is where all official government documents, including legal notices, are sent. You can use your premises or hire a foreign company registration service to provide a virtual office address. Common challenges for foreign entrepreneurs While the process is relatively simple, there are a few hurdles that foreign entrepreneurs may encounter when registering a company in Australia: Resident director requirement: You’ll need a director residing in Australia. If you don’t have one, you’ll need to engage a service provider to fulfil this role. Understanding local tax laws: Australia has a corporate tax rate of 25% for small businesses with annual turnovers of less than $50 million. However, larger companies with turnovers exceeding $50 million are subject to a standard corporate tax rate of 30%. Foreign entrepreneurs must also understand the implications of the Goods and Services Tax (GST) and payroll tax. Compliance with Australian regulations: Navigating Australia’s various regulations and compliance requirements can be time-consuming. An accountant or adviser can help you in this regard. FAQs Can I register a company in Australia as a foreigner? Yes, foreign entrepreneurs can register a company in Australia. The only requirement is to have a resident director. Do I need to be in Australia to register a company? No, you can complete the registration process online. However, you must appoint a resident director. Do I need an Australian bank account to start a business in Australia? You will need an Australian bank account to handle your business’s finances and transactions. Can I operate my Australian company from abroad? Yes, you can operate your company remotely, but you must comply with all local tax laws and regulations.

Practice Update March 2025

5 March 2025
Do bucket companies help build wealth at retirement? Bucket companies are familiar with wealth-building strategies, particularly as individuals approach retirement. By distributing profits to a bucket company, individuals can benefit from reduced tax liabilities and enhanced investment growth opportunities. This essay explores how bucket companies influence wealth building at retirement, their impact on age pension eligibility and tax positions, and strategies to maximise economic outcomes. Understanding bucket companies A bucket company is used to receive distributions from a family trust. Instead of distributing profits directly to individuals, which may attract high marginal tax rates, the trust distributes income to the bucket company, which is taxed at the corporate tax rate (currently 30% or 25% for base rate entities). The company can then retain the after-tax profits for reinvestment or distribution. Impact on wealth building at retirement Tax efficiency and compounding growth Using a bucket company can result in significant tax savings compared to personal marginal tax rates, reaching up to 47% (including the Medicare levy). Retained earnings within the bucket company are taxed lower, allowing more capital to compound over time. Example of Tax Efficiency: Income DistributedPersonal Marginal Tax (47%)Bucket Company Tax (25%)Savings $100,000$47,000$25,000$22,000 Over 20 years, if the tax savings of $22,000 per year are reinvested at an annual return of 7%, they would accumulate to approximately $1,012,000. Age pension and means testing The age pension is subject to both an income test and an assets test. Holding wealth in a bucket company can impact these tests: Income Test: Distributions to individuals count as assessable income. Retained profits within the company do not. Assets Test: The value of the bucket company shares is counted as an asset, which may affect pension eligibility. Strategic use of the company can help individuals control their assessable income, potentially increasing their age pension entitlement. Strategies to maximise economic outcomes Timing of Distributions By deferring distributions from the bucket company until retirement, individuals can benefit from lower marginal tax rates or effectively use franking credits. Dividend Streaming Using franking credits from company-paid tax can reduce personal tax liabilities when distributed dividends. Investment within the Company Reinvesting retained earnings within the bucket company in diversified assets can enhance compounding returns. Family Trust Distribution Planning Strategically distributing income to lower-income family members before reaching the bucket company can reduce overall tax. Winding Up or Selling the Company Carefully planning an exit strategy to wind up the b ucket company or sell its assets can minimise capital gains tax liabilities. Example of a retirement strategy with a bucket company Assume that John and Mary, aged 65, have distributed $100,000 annually from their family trust to their bucket company over 20 years. Corporate tax paid: 25% Annual return on reinvestment: 7% After-tax reinvested earnings annually: $75,000 YearAnnual ReinvestmentTotal Accumulated Amount (7% p.a.)5$75,000$435,30010$75,000$1,068,91420$75,000$3,867,854 At retirement, they can distribute dividends with franking credits to minimise personal tax and supplement their income while potentially qualifying for some age pension benefits due to strategic income timing. FAQ What is a bucket company? A bucket company is a corporate entity that receives trust distributions, taxed at the corporate rate rather than personal marginal rates. How does a bucket company impact my age pension eligibility? While retained earnings do not affect the income test, the value of the company shares is considered an asset under the assets test. Can bucket companies help reduce tax during retirement? Yes, by using franking credits and strategic distribution timing, bucket companies can minimise tax liabilities. Are there risks associated with using bucket companies for retirement planning? Yes, risks include changes in tax laws, corporate compliance costs, and potential capital gains tax upon winding up the company. Should I consult a professional before using a bucket company? Absolutely. Professional advice is essential to ensure compliance with tax laws and optimise wealth-building strategies.

Personal super contribution and deductions

11 February 2025
Personal super contribution and deductions
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