Year-End Tax Planning and 2024-2025 Budget Updates

As another financial year-end approaches we now turn our attention to identifying tax planning action that will be required prior to 30 June 2024. For business clients we will be in touch in the coming weeks regarding your 2023/2024 tax position and required planning actions. For superannuation clients we will be in touch regarding minimum pension withdrawals and other planning measures if required.

Included below is a selection of 2024/2025 budget announcements and other taxation issues that are relevant to planning for a tax effective year end. We note that many of the issues are not new, but we are mentioning them again due to their tax planning relevance.

At the bottom of this newsletter are the tried and tested tax planning tips that all business owners should review and consider as part of their year-end tax planning review.


Business
Instant Asset Write Off – 2023/2024 & 2024/2025
The Government has announced that it will temporarily extend the instant asset write-off threshold for small business entities at $20,000 for the 2025 income year. This is a continuation of the current threshold that applies for the 2024 income year.

Small businesses with an aggregated annual turnover of less than $10 million are able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2024 (or 30 June 2025 for the 2025 financial year).

The asset threshold applies on a ‘per asset’ basis, so small businesses can instantly write off multiple assets. Assets valued at $20,000 or more (i.e. which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

From 1 July 2025 (the 2025/2026 financial year), the instant asset write-off threshold will revert back to (less than) $1,000 however the trend for many years has been for this threshold to be extended each budget.

We note that the senate and lower house are currently debating an increased asset limit of $30,000 and extension of the concession to entities with an aggregated turnover of $50M. While this bill has not been passed by parliament there is a chance that the $30k limit will apply for both the 2024 and 2025 financial years. At this late stage in the financial year it is unclear if this change will be passed and so we suggest that businesses base their planning around the current $20,000 threshold.

Energy relief payments: small business included
The Government will provide $3.5 billion over 3 years from 2023-24 to extend and expand the Energy Bill Relief Fund to provide a $300 rebate to all Australian households and a $325 rebate to businesses on small customer electricity plans on 2024-25 bills.

Super Guarantee Rate
The compulsory super guarantee rate for employees is increasing from 11% to 11.5% from 1 July 2024. Please ensure your payroll software implements this change.


Superannuation

Super account balances above $3m
The Budget did not reveal any further details on the Government’s proposal to apply an additional 15% tax on superannuation “earnings” corresponding to the percentage of an individual’s super balance that exceeds $3m. Per previous announcements this measure is due to commence from 1 July 2025.

We are hopeful that changes will be announced to the draft legislation, in particular the proposal to tax unrealised capital gains.

For Self-Managed Superannuation clients potentially impacted by this change we will be discussing strategy and options to minimise the impact when finalising your 2024 super fund tax return.

Social security deeming rates frozen for a further 12 months (until 30 June 2025)
The Government announced that it will extend the freezing of the social security deeming rates at their current levels for a further 12 months until 30 June 2025. The freezing of the social security deeming rates was originally set to expire on 30 June 2024.

Deeming Rate Financial Assets Financial Assets
Single ($) Couple ($)
0.25% $0 to $60,400 $0 to $100,200
2.25% $60,401+ $100,201+
For the purposes of the social security income and assets tests, the deeming rules in the Social Security Act 1991 provide that any financial investments are earning a certain rate of income, no matter what income they are actually earning. If the actual income pensioners receive from their investments is more than the deemed income, the extra income is not counted when assessing entitlements.

The low deeming rates presents opportunities to potentially qualify for the Commonwealth Seniors Health Card even if in prior periods you have not been eligible. If you would like assistance assessing your eligibility, please contact your Client Manager.

Minimum Pension Draw Downs Unchanged
The minimum pension withdrawals for 2024/2025 are the standard draw down rates that also applied to 2023/2024.

Age 2024-25 normal rates (%)
Under 65 4
65–74 5
75–79 6
80–84 7
85–89 9
90–94 11
95 or more 14
We will be contacting Self-Managed Superannuation Fund pension phase clients over the coming weeks to ensure that minimum pension draw downs have been met for the 2023/2024 year.

Transfer Balance Cap Reporting Reminder
Self-managed super funds (SMSFs) must report certain events in the event-based reporting framework. The following events are required to be reported to the ATO within specific time frames:

  • Commencing a pension.
  • Commutation of pensions – these can occur when you either cease a pension or withdraw an amount that is significantly higher than your minimum pension withdrawals.
  • Commencing a borrowing arrangement within super.
These events must be reported to the ATO within 28 days after the end of each quarter. Previously many of these events were only reported annually when we completed the annual tax return for the fund. The takeaway of this change is that if you are in pension phase we need to know when any large contributions or withdrawals are occurring so that we can complete the required ATO reporting within the specified time frames. If you are unsure if we need to know about specific events, please get in touch.

Superannuation Contributions Caps for the year ending 30 June 2024
The concessional contribution cap for 2023/2024 is $27,500 p.a.

The non-concessional cap in 2023/24 is $110,000 p.a. Correspondingly the maximum amount a member can contribute under the non-concessional contribution cap bring-forward rule is $330,000.

From 1 July 2024 the concessional contribution cap is  increasing to $30,000 p.a. The non-concessional cap is increasing to $120,000 p.a. Correspondingly the maximum amount a member can contribute under the non-concessional contribution cap bring-forward rule is $360,000.

There are very specific rules regarding superannuation contributions that govern who can contribute and how much an individual can contribute.  Prior to making any additional superannuation contributions, please check these eligibility requirements with us.

Carry Forward Concessional Contributions
If you have unused concessional cap amounts from previous years, you may be able to carry them forward to increase your contribution caps in later years. You’re eligible to do this if you have both:

  • a total super balance of less than $500,000 at 30 June of the previous financial year
  • unused concessional contributions cap amounts from up to 5 previous years.
The unused cap amounts you can carry forward depends on the amount you have contributed in previous years, starting from 2018–19. You can carry forward unused cap amounts from up to 5 previous financial years, including when you were not a member of a super fund.

Unused cap amounts are available for 5 years and expire after this. For example, a 2018–2019 unused cap amount that is not used by the end of 2023–24 will expire.
The ATO portal contains information on unused contribution caps from prior years. Your Client Manager can access the figures if you are interested in making catch-up concessional contributions.

Government Co-Contribution
If you earn less than $58,445 p.a. and at least 10% of your income comes from employment or running a business, you could be eligible for the government co-contribution. The government will contribute 50 cents for every dollar of after-tax contributions you make to your superannuation fund up to a maximum of $500. The full benefit is available for income earners under $43,445 and phases out where adjusted taxable income is between $43,445—$58,445. Other superannuation balance thresholds and aged based restrictions apply so please contact your Client Manager if considering making a contribution.

Spouse Contribution
You may be able to claim a tax offset of up to $540 per year if you make a super contribution on behalf of your spouse (married or de facto) if their income is below $40,000.
The tax offset is calculated as 18% of the contribution amount up to a maximum contribution of $3,000. Other superannuation balance thresholds and aged based restrictions apply so please contact your Client Manager if considering making a contribution.


Individual Tax

Stage 3 Tax Cuts
While not a new announcement the revised stage 3 tax cuts continue to be applicable from 1 July 2024. The current and future tax rates for Australian tax residents are:

2024 income year From the 2025 income year
Tax Rate Thresholds Tax Rate Thresholds
0% $0 – $18,200 0% $0 – $18,200
19% $18,201 – $45,000 16% $18,201 – $45,000
32.5% $45,001 – $120,000 30% $45,001 – $135,000
37% $120,001 – $180,000 37% $135,001 – $190,000
45% $180,001 + 45% $190,001 +
 The above tax rates do not include the 2% Medicare levy.

From a planning perspective these tax cuts may present a tax planning opportunity for those that have the ability to delay income until the new financial year.


Tax Planning – 7 Quick Tips
You have almost certainly seen this list before but this is because they are the go to options that all businesses should be considering. Please contact your Client Manager if you have any questions about how best to implement these strategies.

1.      Pay June Quarter Employee Super Before 30 June – Superannuation is only tax deductible when received by the super fund. This means that super accrued in the June Quarter will not be tax deductible until next year if it is paid when it is due on 28 July. Get the tax deduction in 2023/24 by paying your employee super at least two weeks before the end of June, to allow for clearing house processing timeframes.

2.      Super contributions – Individuals can claim a tax deduction for contributions they make towards their superannuation. This is one of the only tax deductions where you can claim a deduction but not actually erode your overall asset position. As above, superannuation is only tax deductible when received by the super fund so please plan to make any contributions as early as possible before 30 June.

There may be additional conditions that you must meet before making a contribution, so please consult with your Client Manager before proceeding.

Please note that our comments regarding superannuation only consider the taxation consequences of superannuation. This is only one of the factors to consider when making a decision on a financial product. If you are seeking financial product advice or investment advice, you should contact a person who is licensed to provide this advice under the Corporations Act 2001.

3.      Pre-pay Expenses – Consider pre-paying business expenditure. Small business entities with a turnover of less than $50M can pay up to twelve months of expenses in advance.  This strategy is particularly effective if your income is unusually high in the current tax year. It is also enhanced as a result of the stage three tax cuts commencing 1 July 2024 (refer above).

4.      Review Debtors and Trading stock – Prior to 30 June, review your trade debtors list to see if any bad debts can be written off.

Perform a stock take on 30 June to ensure that worthless/obsolete stock isn’t included in your closing stock figures. Inflated closing stock effectively increases your taxable income.

5.      Bring Forward Capital Expenditure – Businesses can consider bringing forward the purchase of capital assets (refer above).

6.      Ensure low tax thresholds are utilised – One of the most tax effective strategies involves ensuring that taxable income is shared amongst immediate family members to ensure that no individual is being pushed into the higher tax brackets unnecessarily. This can be achieved by wage payments, trust distributions and/or dividend payments. Your Client Manager will review these options in the coming weeks, but if you would like to discuss how you could use this strategy, please give them a call.

7.      Capital Gains – If you have derived any capital gains from the sale of your investments or business assets this year, consider whether you can offset them by crystallising any capital losses on the sale of other assets (where possible), or be able to use the CGT Small Business concessions. Please contact us to discuss well prior to 30 June 2024 if you are considering applying this strategy.

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