We’ve compiled some of the more important ideas small and medium-sized business enterprises should be considering when undertaking tax planning with their tax advisor this income tax year.

Small business entity depreciation rules

A Small Business Entity (SBE) is broadly an entity conducting a business with an annual aggregated turnover of less than $10 million.

If you are an SBE that chooses to apply the simplified depreciation rules, then you can claim an immediate deduction for eligible fixed assets that cost less than $20,000.

Assets costing $20,000 or more, will be added to a pool and depreciated at 15% in the first year and 30% in subsequent years.

To claim depreciation in the current financial year, the asset must be first used or installed ready for use by 30 June 2024.

Other concessions available for small businesses

Small businesses can qualify for a number of income tax concessions that may be relevant for their year-end tax planning. Provided your business has a turnover of less than $50 million, it may qualify for:

• A lower corporate tax rate of 25%;

• Immediate deduction for certain start-up expenses and prepayments;

• Simplified trading stock rules;

• Pay as you go (PAYG) instalment concessions;

• A two-year amendment period;

• Excise concessions.

Businesses with a turnover of less than $10 million may also qualify for a roll-over concession when undertaking a genuine restructure of a small business.

Trust distributions

Trusts remain a popular vehicle in Australia from which to conduct businesses or own the equity in a business. If your business structure involves a trust, then it is crucial that the Trustee prepares a resolution to distribute income to beneficiaries prior to 30 June 2024 (or earlier as required by the Trust Deed).

Failure to do so may result in the Trustee being taxed on profits at the highest marginal rate of tax (45% + Medicare levy) or distributions being assessed to default beneficiaries.

Beneficiaries must also be notified of their entitlement to trust income by the earlier of the due date and actual date of lodgement of the Income Tax Return for the trust.

To ensure the resolution can be made with tax effective considerations in mind and also be documented prior to year-end, allow plenty of time to meet with your tax advisor well before year end. The validity of trustee minutes is routinely the subject of ATO audit activity.

Variation of PAYG instalments

Subject to a review of your year-to-date tax position, it may be possible to reduce the amount of your March and June 2024 quarterly PAYG instalments. This can help improve your cashflow now rather than waiting until you lodge your Income Tax Return to receive a refund.

Bad debts

If you have any bad debts, ensure that these are written off prior to 30 June 2024 to claim a deduction. Minutes should also be prepared to formally document the write off.

Non-commercial losses

The non-commercial loss provisions will apply to deny an individual from offsetting a loss from a business activity against other income earned during the income year unless one of the following four tests are passed:

1. Assessable income test

The assessable income from the activity for the year must be at least $20,000.

2. Profits test

The activity must have resulted in a profit in at least three out of the last five income years, including the current year.

3. Real property test

The total reduced cost bases of real property or interests in real property used on a continuing basis in carrying on the activity must be at least $500,000.

4. Other assets test

The total value of other assets (other than motor vehicles) used on a continuing basis in the activity must be at least $100,000.

There is an exception for primary production and professional arts businesses if your assessable income from other sources not related to that particular business activity is less than $40,000, excluding any net capital gains.

Individuals with an adjusted taxable income of $250,000 or more will generally not be able to offset losses from non-commercial activities against other income. However, you may be able to request the Commissioner’s discretion to allow you to claim the loss where special circumstances exist.

Small business capital gains tax (CGT) concessions

A capital gain on the sale of an active asset that is used in the course of carrying on a business may be reduced if certain basic conditions are satisfied. One of the entry tests is that you must either be a CGT small business entity (carry on a business and have less than $2 million in aggregated turnover) or satisfy the maximum net asset value test (have an aggregated value of net assets of less than $6 million).

The concessions include:

• Small business 15-year exemption.

• Small business 50% reduction.

• Small business retirement exemption.

• Small business roll-over.

These concessions can be extremely valuable to business owners looking to sell or restructure their affairs. The concessions can be complex to correctly apply, particularly when they are applied to a business conducted via a structure involving multiple entities.

We recommend you discuss with your tax advisor before entering into a contract to sell a business or other business asset to determine your eligibility to apply these concessions.

Timing of income and expenses

Consider the recognition of income leading up to 30 June 2024, such as:

• Timing of sales income.

• The date of signing a contract for the sale of a CGT asset.

Also, consider bringing forward deductions prior to 30 June 2024, such as:

• Acquiring depreciating assets.

• Undertaking repairs on property and machinery.

• Superannuation contributions.

• Prepaying expenses.

The timing of income and expenses will be particularly important this financial year with the stage 3 tax cuts taking effect from 1 July 2024. This will result in lower taxes for many individuals next financial year.

The tax rates that currently apply to resident individuals for the 2023/24 year are:

The tax rates that will apply to resident individuals for the 2024/25 year are:

Trading stock

You should undertake a stocktake on 30 June 2024.

Stock can be valued under different methods for each item of stock:

• Cost;

• Sales value;

• Lower of market value or replacement cost.

Reduction in company tax rate

The company tax rate for base rate entities is 25%. The tax rate for all other companies is 30%.

A base rate entity is a company that has an aggregated turnover of less than $50 million and no more than 80% of its assessable income is ‘base rate entity passive income’. Base rate entity passive income broadly includes interest, dividends, rent, royalties, and net capital gains.

Where a company was a base rate entity in the previous year (i.e. 2022/23), its dividend franking rate in the current year (i.e. 2023/24) will be 25%. If these conditions are not satisfied, the 2023/24 franking rate will be 30%.

Superannuation guarantee

The superannuation guarantee rate increased from 10.5% to 11% from 1 July 2023. The rate is expected to progressively increase by 0.5% each year until it reaches 12% on 1 July 2025.

Single touch payroll (STP)

The end-of-year STP finalisation must be lodged by 14 July for arms-length employees. However, you have until 30 September to lodge the end-of-year STP finalisation for closely held payees.

All employers should now be compliant with STP Phase 2 reporting unless covered by a deferral or exemption.

Small Business Skills and Training Boost

You may be entitled to an extra 20% deduction on eligible training expenditure incurred between 29 March 2022 and 30 June 2024.

Broadly, to claim the 20% boost, you must be carrying on a business and have an aggregated turnover of less than $50 million. Furthermore, the expenditure must be for the provision of training employees of your business and it must be charged by a registered external training provider.

Small business income tax offset

For individuals that carry on a small business (aggregated turnover of less than $5 million) as a sole trader, or have a share of net small business income from a partnership or trust, you may be eligible to claim a small business income tax offset of up to $1,000.

You must first determine the percentage of your total net small business income for the year over your taxable income for the year multiplied by your income tax liability for the year. The offset is then calculated as 16% of this amount up to a maximum of $1,000.

Minimise your business’ exposure to income tax with an annual tax plan with the help of a Findex tax advisor.