We are getting near the end of the tax year, so you might want to consider ways to reduce your business’ tax bill.
How to reduce your tax bill
The two simplest ways to do this are to reduce assessable income or increase deductible expenditure. Either way, the business’ taxable income (and thus the amount of tax payable) is reduced.
One way to reduce assessable income for the current tax year if your business reports income on a cash basis is to delay sending an invoice to a customer until after 30 June. Of course, cash flow requirements may dictate otherwise.
If you are in the process of selling property and the profit will be taxable as a capital gain, you could defer the sale until the next tax year – but remember that the liability to pay CGT arises when you exchange contracts and not on settlement.
You can increase deductible expenditure by bringing it forward from the next tax year to the current tax year. This is particularly useful where an immediate deduction is available. For example, for depreciating assets if you are a small business, start-up costs and certain prepaid expenses.
Charitable donations are a good way to increase your deductions. If you are not sure if a donation will be deductible, you can check the deductibility status of charities here. In certain circumstances, a deduction is available where trading stock is donated. Don’t forget to ask for a receipt.
If you are a sole trader or a partner in a partnership, the benefits of reducing your taxable income could include:
- Reducing your marginal tax rate, for example, from 45% to 37% or from 37% to 32.5%; and
- Avoiding liability for the Medicare levy surcharge (at least 1%) if you don’t have adequate private health insurance.
As the end of the tax year approaches, talk to KMT tax adviser about ways to minimise your tax bill.
Trustee resolutions
If you operate your business through a trust and you wish to make beneficiaries presently entitled to trust income for the 2023–24 income year, you should ensure your trustee resolutions are effective. This includes where you may want to make beneficiaries specifically entitled to franked dividends and capital gains that are included in trust income.
Note that you do not have to prepare the trust accounts by 30 June to make beneficiaries presently entitled to trust income.
It is important that the trustee:
- Ensures decisions are consistent with the terms of the trust deed. Check that the trust hasn’t vested, as this may impact distribution decisions;
- Considers who the intended beneficiaries are and their entitlements to income and capital under the trust deed. If the trustee has made a family trust election (FTE) or an interposed entity election (IEE), this may have a tax impact on distribution decisions;
- Notifies beneficiaries of their entitlements to allow beneficiaries to correctly report distributions in their tax returns, preventing trust income from being omitted;
- Follows any requirements in the trust deed governing the making of trustee resolutions, including the need to have the resolution in writing and the timing of when it is required to be made (there is no standard ATO format). Resolutions making one or more beneficiaries presently entitled to the trust income need to be made by the end of the income year;
- Ensures that resolutions are unambiguous; and
- If the trust has capital gains or franked distributions the trustee would like to stream to beneficiaries — confirms the trust deed does not prevent this and that the trustee has complied with the legislative requirements relating to streaming these amounts.
Note that, if a resolution is validly made by 30 June, the ATO will accept records created after 30 June as evidence of the making of a resolution by that date.
Trustee checklist
To help trustees, the ATO has published a useful checklist in the form of a series of questions.
- Do you have a complete copy of the trust deed?
- Who can you appoint income or capital to?
- Has the trust vested?
- Is there a family trust election in force for the trust?
- When do you have to make resolutions?
- Does a resolution have to be in writing?
- Is the wording of your resolution clear and unambiguous?
- Is the entitlement vested?
- Can the entitlement be taken away?
- How should you calculate and report the income of the trust?
- Are you ‘streaming’ capital gains or franked distributions?
- Are you seeking to ‘stream’ other types of income?
- Have all entitled beneficiaries quoted their tax file number (TFN) to you?
Family trusts
Family trust distribution tax (FTDT) is payable when a trust that has made an FTE, or an entity that has made an IEE, makes a distribution (including to another entity) outside the ‘family group’ of the individual specified in the election. The rate of FTDT is 47%.
So, where an FTE or IEE is in force, it is important to identify who is in the ‘family group’ of the individual specified in that election.
For non-fixed (discretionary) trusts to be within the ‘family group’ of the individual specified in an FTE made by another trust, they would need to have either:
- Made an FTE with the same specified individual; or
- Made an IEE to be included as a member of the specified individual’s ‘family group’.
Talk to KMT tax adviser to ensure that trustee resolutions are effective and that no liability to FTDT arises.
Download our tax planning guide to learn strategies and tips on how to minimise your personal and business tax from our Free Resources
Contact KMT accountants now for your tax planning advice!
About our advisers:
Chrisanthe Lekatis is renowned for her expertise in management accounting, virtual CFO services, and top-tier business advice. She empowers management with tailored strategies for success, streamlining processes to achieve efficient and cost-effective outcomes. Her commitment to building trust and lasting relationships goes beyond professional excellence; it’s a personal ethos. By actively listening and understanding her clients’ businesses and goals, Chrisanthe thrives on collaborative efforts to navigate challenges and collectively achieve their aspirations. Please do not hesitate to reach out if you need assistance.
Michael Fox has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over 4 decades. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. Please do not hesitate to reach out if you need assistance.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from a qualified accountant at KMT Partners. Information is current at the date of issue and may change.
