Ask Us Anything: Your EOFY questions, answered

We put out the call for you to ask your burning EOFY questions and you did not disappoint!

Kicking off our very first Ask Us Anything (in partnership with SmartCompany) is finance expert Jason Andrew of SBO Financial.

1. Can the $20,000 asset write-off be used for digital products e.g. a new website, or can it only be used for things like machinery and tools?

As part of the 2024–25 Budget, the government announced it will extend the $20,000 instant asset write-off scheme until June 30, 2025. These measures are not yet law, so don’t take this as gospel.

So what is the instant asset write-off again?

Small businesses with an aggregated turnover of < $10 million are able to immediately deduct the full cost of eligible assets that cost less than $20,000. The assets need to be first used or installed ready for use between July 1, 2023 and June 30, 2025.

Once legislated, the $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.

This write-off is only eligible for certain assets. A heuristic is that generally any asset that is traditionally ‘depreciated’ under the ATO’s simplified rules is included. This typically includes:

• Cars
• Plant and equipment
• Tools and machinery

There are a small number of assets that are specifically excluded from the simplified depreciation rules. For the majority of small business, this typically includes:

• In-house software allocated to a software development pool (but not general off the shelf software)
• Assets used in research and development (R&D) activities
• Capital works - capital work done to your building and structural improvements

Website development is generally eligible capital expenses and therefore eligible to be fully written off under the instant asset write-off scheme. The costs of the website would typically include the labour and associated software.

All the ongoing website maintenance costs such as hosting fees etc. are deductible as general operating expenses.

2. How will the new tax brackets affect small business and should I be planning ahead for this before EOFY?

OK so for those folks that are unaware, there are some changes to the tax brackets for individuals from July 1, 2024 (which impact your 2025 income tax returns).

You can find more info on the impact of these changes to your personal tax here.

Basically the tax rates and brackets are changing so that everyone will pay slightly less tax personally from July 1, 2024 (the 2025 financial year).

Now from a business owner’s perspective, there a few things to note:

If your business is trading as a Company (Pty Ltd), the company tax rate remains unchanged at a flat 25%. The individual tax rate changes won’t have any impact on how you run the financial affairs of your business.

If your business is trading in a Trust, Partnership or sole trader structure, it may.

In the latter structures, all of the taxable income (profit) generated from the business must be distributed to the individual beneficiaries. In other words, these entities don’t pay any tax themselves – instead the individual beneficiaries will pay the tax on the business profits personally, and will be subject to personal marginal tax rates.

As the personal income tax rates are lowering from July 1, 2024, you may want to consider bringing forward some business expenses to incur them before June 30, 2024. This is because every tax deduction now is worth slightly more to you personally.

I’ll put it another way – as the personal tax rates are higher now, the tax deductions on your expenses are worth more to you. This means you should consider maximising your tax deductions before June 30, 2024.

3. We’re right up against the end of the financial year. Is there anything you’d recommend as basic steps that everyone should be thinking about, irrespective of their category?

I want to begin by saying that “tax savings” are not the same as “tax deferrals”.

It’s my pet peeve when accountants talk about “saving tax” – in reality, the advice they give is just about deferring it.

Because here’s the thing – your business expenses will be deductible, whether it’s now or next year. Bringing forward tax deductions simply means you get the tax benefit now, instead of getting it later.

Don’t get me wrong, I’m all for deferring tax, but don’t confuse tax savings and tax deferrals.

Anyway, rant over.

Here are simple tax deferral tips you can consider doing in your business:

• Prepay your June 2024 Quarter Superannuation – superannuation is only deductible when it’s physically paid, not when it’s incurred. My recommendation is to consider paying your June Quarter Superannuation now, leaving heaps of time for the funds to clear in your employee’s superfund before June 30. This means you can claim the tax deduction in the FY24 return.
  
• Defer any Capital Gains – if you’re in the process of selling any assets which will attract a capital gain – for example an investment property or shares, consider deferring the sale date to after July 1 2024. This means that any capital gain is declared in your 2025 tax return, which is generally not due until May 2026. This means you can sit on the cash for almost two years before having to pay the ATO.
  
• Writing off bad debts - it's a tough economy at the moment. You may be sitting on a few debtors which are realistically not collectible. Review your debtor's ledger and establish whether any of these are unrecoverable. If this is the case, tax deductions can be claimed for the write-off of bad debts. A GST adjustment can also be made for the write-off of bad debts in your June 2024 Business Activity Statement.
• Impact of change in individual tax rates – as mentioned above, you should consider the impact of the reduction to individual income tax rates from July 1 2024. The change could impact the overall tax position when considering the timing of income, deductions and declaring dividends.
  

There are a few more general tips like maximising your concessional superannuation contributions and repaying any Division 7A loans in your company – but these will be specific to your circumstances.  If you haven’t had a chat with your tax accountant about any of these, I recommend checking in with them before June 30 just to make sure you’ve covered all the low-hanging fruit.

One final message before I go.

Leading up to the end of the financial year I see so many business owners going crazy buying cars, equipment and other random things, just to get tax deductions.

It’s ok, I get it.

Most people hate paying tax.

But don’t let this fear drive your ability to make good financial decisions.

Tax consequences should be secondary to the goal of investing and building a business.

And that goal is to make money – not lose it.

^{Disclaimer: This article does not constitute tax advice and is shared for information purposes only – every business is unique, we suggest seeking independent advice to suit your own needs. This content was produced by SmartCompany, in partnership with Optus Business.}

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