2023 Tax Planning - Key Priorities

With the end of financial year approaching quickly, NOW is the time to discuss with us the actions you can take before 30 June 2023 to reduce your tax and grow your wealth.

For 2023, key priorities are likely to include:

  • Reviewing whether you can still allocate trust distributions (from your Family Trust or Discretionary Trust) to adult children or parents as a result of the newly released ATO Tax Rulings

  • Maximising superannuation contributions – and using carry-forward amounts from prior years if applicable to make even larger superannuation contributions

  • Bringing forward deductible expenses

  • Deferring taxable income

  • Managing capital gains

  • Using a Family Trust or a “bucket company” to cap your tax at 25% or 30%

Using a “bucket company” can be a great strategy for saving tax on trust profits distributed.

PROFITS FROM A TRUST?

Do you have a Discretionary or Family Trust that generates profits? If yes, then this strategy may apply to you.

A “bucket company” allows you to “cap” the tax on profits distributed by a trust to 30% or 25%. This is much less than the individual top marginal rate of 47%!

Here’s how this works:

Assume a trust earns $250,000 in profits from business.

Option 1: Distribute profits 50 / 50 to Individuals 1 and 2. Total tax (inc. Medicare Levy) payable = $66,734 (26.7%)

Option 2:  Distribute $90,000 each to Individuals 1 & 2 and distribute balance of $70,000 to a “bucket” company at a 25% tax rate. Total tax payable = $60,534 (24%). (Note: This strategy assumes that the $70,000 in cash is available to be distributed to a bucket company, otherwise what is known as a Div 7A Loan Agreement will need to be entered into and loan repayments made over a 7-year period.)

The VALUE of this strategy is $7,100 in TAX SAVED!

The cash in a “bucket company” can be used to invest in shares, property, or to lend to other entities at a specific interest rate.

Important: You need to discuss this with us BEFORE you do it. There are different tax laws that affect the use of this strategy, and whether your “bucket company” can use a tax rate of 30% or 25%.

As Accountants, we are very aware of these tax laws and can make this easy for you.

Do you have a Discretionary Trust (also known as a Family Trust)?

In the lead-up to 30 June 2023, we want you to be aware that you need to complete your Trust Distribution Resolutions before 30 June. Why? To avoid paying extra tax of up to 47% of Trust profits.

How can this happen?

If a Trustee of a Trust fails to make a resolution to distribute the income of the Trust before the end of the financial year, the Trustee may be assessed by the Australian Taxation Office (ATO) on the Trust income at the highest marginal tax rate of 47%, rather than the intended beneficiaries being taxed at generally much lower tax rates.

WHAT WE ARE DOING TO HELP YOU…

Even though preparing a trust distribution resolution before the end of the financial year can be quite complex, we need to help you to comply with the trust taxation laws. 

The steps we need to undertake on your behalf include:

  • Review of your prior year Trust Distribution Resolution

  • Confirmation with you of the estimated Trust income of your Trust for the year ended 30 June 2023

  • Review of your Trust Deed to ensure that the income definition and distribution clauses in your Trust Deed allow the proposed Trust Distribution Resolution for 30 June 2023

  • Advice on the most tax effective distribution of this estimated Trust income

  • Preparation of Trust Distribution Resolution and ensuring it is signed by the Trustees PRIOR to 30 June 2023

Next Steps

Contact us today! The sooner we get started; the sooner we can help you save.

Jenni Anderson