With the end of the financial year fast approaching, there is a range of tax planning opportunities that could help reduce your tax exposure this financial year. This article will delve into the most common strategies I see in practice.
For income, it is important to know when earnings are treated as income in your tax return. Generally, this is when the right to receive payment arises as a debt due and owing. Therefore, sales that occur near the end of the financial year may not need to be declared until the next financial year.
The timing is also important when planning to claim business expenses. These can be claimed when you have incurred an expense. To be incurred, you may be definitively committed or completely subjected to the expense, even though you may not have paid this expense by June 30.
Small businesses can also prepay expenses such as rent and interest and claim the expense in the year they are paid, and there are many suppliers that offer prepayment accounts and programs for you to make these payments in line with the prepayment rules.
Superannuation is another option that can have significant tax benefits. The concessional contributions cap is $27,500 for the 2024 year, but it could be even higher if your super balance is less than $500,000 and you have not used up your contribution caps in prior years. Please note you cannot access your super until you meet a condition of release, and the super fund will pay 15 per cent tax on concessional contributions received.
The purchase of new assets is not as attractive as prior years due to temporary full expensing ended on June 30, 2023. Small businesses can immediately deduct eligible assets which cost less than $20,000 as long as the asset is installed and ready for use by June 30, 2024. Any assets costing more than $20,000 can be pooled, which allows a claim of 15pc in the 2024 year.
While temporary full expensing has ended, the special deductions for primary producers are still available. There is still concessional tax treatment for capital expenditure relating to telephone lines, horticultural plants and new grapevines, water facilities, fodder storage assets, fencing assets, landcare operations and timber depletion.
Farm management deposits are another useful tool used by many of our clients. The scheme is designed to allow primary producers to shift income from good to bad years in order to deal with adverse economic events and seasonal fluctuations. A tax deduction can be claimed when the deposit is made and treated as income when the deposit is subsequently withdrawn.
If you are forced to dispose of livestock or if stock dies as a result of the destruction of pasture or fodder due to drought, fire or flood, you can elect to defer the tax profit on the forced sales over five years.
It is important to note that these are the most common general tax strategies that I see for primary producers that are small businesses. Each business is unique and you should consult with your adviser on the strategies available to you so action can be taken by June 30.
- Craig Wilkes is a director at HHH Partners.
