Minimise tax liability, maximise after-tax position, and boost cash flow
To minimise your tax liability, maximise your after-tax position and boost your cash flow, it is best to start year-end tax planning well before June 30 and make it an ongoing process. This year is also particularly important as the Stage 3 tax cut will come into effect on 1 July 2024.
What will happen under stage 3 cuts:
The higher tax threshold will increase from $180,000 to $200,000
The $120,001 – $180,000 tax bracket will cease
Income between $45,001 and $200,000 will be taxed at 30%
They will have a huge impact on medium to high-income earners. Though there has been a clamour to repeal the tax cuts, they remain legislated.
Here are some strategies to consider before these changes take effect:
Instant asset write-off: Australian businesses can claim an immediate deduction for the cost of new assets in the first year they are used or installed ready for use. This measure is legislated to end on June 30, 2023, so it's critical to assess options now to potentially take advantage of the temporary full expensing measure before it ends.
Tax rates and franking of dividends: The company tax rate is now 25% for most SME businesses and 30% for larger companies and passive investment companies. However, understanding the potential ‘top up’ tax as a dividend flows through your structure to the ultimate shareholders is critical. Putting capital gains into the hands of individuals (or trusts that distribute to individuals) is often a sensible structuring approach.
Loss carry-back: This measure enables entities to offset a loss in the current financial year against a profit in a recent year, potentially obtaining a refund of the tax paid in the earlier year, a reduced tax liability, or a reduction of a tax debt owed.
Tax-deductible debt: It’s increasingly important to maximise tax-deductible debt given rising interest rates. Holding business debt at the shareholder level rather than in the entity that conducts the business may allow the shareholder to claim the interest deductions. Consider moving personal debt from your principal place of residence on to your investment portfolio.
Superannuation contributions: Individuals with a superannuation balance of less than $500,000 who have not exhausted their concessional contributions cap in the 2019, 2020, 2021, or 2022 years may be eligible to carry forward the unused portion of their caps and make additional contributions in the 2023 financial year, for which they can claim a tax deduction.
Tax deductible insurance contributions: Consider paying a yearly premium to make the reduce the overall premium paid but also increase the deduction in this Financial Year.
Revisiting your trust distributions: Making distributions to beneficiaries on lower marginal tax rates can provide tax advantages. However, it is important to be aware of the ATO's clampdown on distributions to adult children that do not receive the full benefit.
Exit planning: Accessing the small business CGT concessions is a significant consideration when selling a business. Having private assets, investment assets, or Division 7A loans in a company you plan to sell could impact your eligibility for the small business CGT concessions.
Effective tax planning is an ongoing exercise that's best achieved with the assistance of experienced tax and financial advisers who can tailor advice and strategies to your circumstances. Get in touch with us to arrange an obligation-free consultation today.