Bonus deductions, super, and trusts: 20 EOFY tax tips for small business

That faint rustling you hear is the sound of Australian small business owners fluttering through piles of paperwork and crumpled receipts, as they gear up for yet another tax season.

Preparations for the 2023-2024 financial year are already well underway, but there is still time for small business leaders to extract the best possible outcome for their enterprise.

SmartCompany has heard from experts across the accounting field on how small businesses should optimise their tax return this year.

Some tips are familiar, but new legislation and changing write-off criteria are enough to provide new opportunities to seasoned business veterans.

Prepare for the end of temporary full expensing

The clue is in the name: temporary full expensing, a pandemic-era policy allowing businesses with an aggregate turnover below $5 billion to immediately deduct the full cost of any capital asset (the business portion of it, at least) from their tax liability, expires on June 30.

Not only does the measure expire, there are also notable rules about when those assets must be ready for use.

Elinor Kasapidis, senior manager of tax policy at CPA Australia, says any asset intended to be the subject of a temporary full expensing for the 2022-23 tax year “has to be installed and ready for use by 11.59pm on 30 June”.

This means there is precious little time remaining to reap the tax rewards of major business purchases.

There is one minor upside, though.

Small businesses can still claim deductions on assets not installed ready for use by that deadline, thanks to the general and simplified depreciation rules already on offer.

Consider the new instant asset write-off threshold

Replacing temporary full expensing will be a new, adjusted instant asset write-off scheme.

Unlike the lofty $150,000 write-off limit which immediately preceded temporary full expensing, July 1 will see the limit revert to $20,000 for the 2023-2024 financial year.

That means small businesses will be free to immediately claim the business portion of any asset as a tax deduction, up to $20,000.

It remains a significant boon for entrepreneurs, but small businesses should still prepare themselves for a drastically different set of rules as of next week.

“There’s a lot of complacency around the small business asset runoff,” says Tony Greco, general manager for technical policy at the Institute of Public Accountants.

“People have not appreciated that we’ve had what we call ‘Utopia’, basically, ‘Write off whatever you spent’, and that that’s about to end.

“I think if a small business owner hasn’t really picked up on that, they could be in for a bit of a surprise,” he adds.

BONUS: Consider other new changes coming on July 1

A new instant write-off threshold isn’t the only major tweak arriving at the turn of the month.

Changes to the minimum wage will be of concern to many small business owners: the national full-time minimum wage will rise to $882.80 per week, or $23.23 per hour, and minimum award rates will rise by 5.75%.

The superannuation guarantee will lift from 10.5% to 11%, covering pay periods from July 1 onwards, which may include work actually conducted this financial year.

Thanks to measures revealed in the latest federal budget, the GST and PAYG uplift factor will sit at 6%, rather than the 12% scheduled under the regular uplift formula.

On the budget, the new Small Business Energy Incentive — something like a specific version of the bonus boosts listed above — will kick in from July 1, entitling 20% bonus deductions on energy efficient upgrades.

Remember to use the retroactive Technology Investment Boost

One of the biggest potential wins for small businesses this tax time comes through the Technology Investment Boost, which grants eligible small businesses an extra 20% deduction on new tech platforms, digital upgrades, and software subscriptions.

Bonus deductions of up to $20,000 are up for grabs, covering spending all the way back to late March 2022.

“If you’re a small business who invested in technology or digital operations between March 29, 2022, and June 30, 2023, then this boost is for you,” explained Emma Tobias, ATO assistant commissioner.

However, businesses should be aware that purchases must be first used, or installed and ready for use, by June 30 this year to take advantage of the bonus tax deduction.

This means small businesses yet to purchase that new cybersecurity coverage or those fresh laptops should do so ASAP.

… And the Skills and Training Boost

The Technology Investment Boost is partnered by the Skills and Training Boost, a very similar initiative offering 20% bonus deductions on relevant training expenditure covering small business staff.

Certain rules apply: only training provided by registered organisations is eligible, and small business owners can’t claim the bonus deduction for training they administer for, or by, themselves.

That policy also covers spending from March 29 last year, but it extends to June 3o, 2024, meaning it’s not a “use it or lose it” proposition like the Technology Investment Boost.

Take your time and talk to your accountant

It’s a simple tip, but one which bears repeating.

“You can cut your own hair, but you’ll get a better result if you see a professional,” says Kasapidis.

Engaging a tax expert is similar, and could keep your business from receiving another type of haircut this tax time.

The ATO would also appreciate it. Although some measures on this list are time-sensitive, when it comes time to actually file your business tax return, taking the time to fully understand opportunities and tax liabilities will make everyone’s life a lot easier.

“While you can lodge from 1 July, there is a much higher chance that your return will be missing important information if you lodge your return before late July,” said ATO assistant commissioner Tim Loh.

“If you forget to include everything, it will slow down the progress of your return, and you’ll likely end up with more work to do down the track.”

Write off inventory, if required

It’s a classic piece of advice with particular relevance for today’s small businesses.

The sudden start and slowdown of spending in Australia’s post-lockdown economy means businesses may have over ordered stock that simply isn’t moving at the rate it needs to.

Small businesses “across the board” are warehousing too much stock, says Greco, making this a prime time to consider writing down its value to claim a deduction.

“So review that inventory, write it off this year,” he suggests.

“That way you bring forward the deduction so you’re not paying more tax than you need to, in the hope that you’re going to get full dollar value for that debt or stock.”

… And bad debts

The same is true for bad trade debts, if a small business can prove they took genuine steps to recoup it and that it is genuinely not recoverable.

“If you know a debt is bad, write it off now,” Greco says.

“Might as well get the benefit of the deduction.”

Consider the loss carry-back scheme before it expires

The loss carry-back scheme, a pandemic-era initiative allowing incorporated businesses to deploy recent tax losses against previously-taxed profits, ends this financial year.

The ATO says that under the scheme, eligible businesses may receive a cash refund, reduced tax liability, or a reduction in the debt owed to the tax office.

Businesses interested in taking advantage of the scheme should check out the ATO’s eligibility tool, or speak with their tax advisor about what might work best.

Keep an eye on new work from home rules

New income tax deduction rules now apply to expenses incurred when working from home.

This financial year, the ATO offers an updated 67 cent-per-hour fixed rate deduction on WFH expenses.

However, anyone hoping to claim that fixed rate deduction will need to record the total hours worked from home since March 1, 2023.

Anyone hoping to claim the fixed rate deduction will also need to hold onto relevant utility bills.

While the rules will mostly cover employees, small business owners who work for someone else part-time should take note.

Take note of trust distributions to avoid heavy tax burdens

Discretionary trusts remain an incredibly common way for small businesses to structure their affairs, even as the ATO increases its scrutiny of the sector.

Greco says that first and foremost, trust distribution resolutions need to be lodged by June 30, or profits from the trust will be taxed at the highest marginal tax rate of 47%.

“That’s number one,” he says.

Beware of other trust requirements

It is vital to know that discretionary trusts are not simply set-and-forget vehicles to manage a small business’ profits.

“A lot of business owners have just asked their accountant, ‘Help me with the trust resolution’,” Greco says.

“But that’s the problem: trusts are a complicated legal animal.”

The vast majority of small and family businesses operating through trusts, which fairly distribute profits to adult children on low marginal tax rates, are unlikely to draw the ire of the tax office.

But small businesses should still become familiar with how the ATO is approaching the infamous S100A anti-avoidance rules, and which types of trust distribution are most likely to catch the eye of the tax office.

Businesses using trust structures should consult on these matters with their accountant.

No refraining from disclaiming

There may be circumstances in which a trust beneficiary doesn’t want to accept funds from a trust: for example, in cases where a trust distribution affects a beneficiary’s eligibility for the aged pension.

Greco says those individuals must disclaim those distributions before June 30, lest they face the tax implications and other ramifications of receiving those funds.

“If they don’t disclaim before the end of the year, they’re gonna have to wear it,” he adds.

Plan ahead

Poring over the books gives small businesses a unique chance to examine what worked in the past year, and what didn’t, allowing them to make considered choices for the year ahead.

It may feel like extra work, but thinking proactively about the last year’s finances could help the next end of financial year rush feel a little smoother.

The EOFY assessment can also yield insights about imminent cashflow challenges.

Ben Verney, founding partner of insolvency and restructuring practice Greyhouse Partners, says “EOFY planning is a welcome opportunity” to discover how assets on hand line up with business liabilities.

“The risk of insolvency is decreased if this process is performed regularly,” he adds.

Think about owning up to lapsed ATO payments

The 2023-2024 federal budget includes a reprieve for small businesses that have fallen behind on payments to the ATO: from July 1, businesses that own up to certain lapsed payments will not face failure to lodge penalties.

As the final touches on this year’s tax returns take place, it is worth considering the ATO’s offer, which expires on December 31 this year.

Be realistic about your tax deductions

Business owners should be conscious that not every creature comfort associated with the workplace, or working from home, is a tax-deductible expense.

Kasapidis is calling on small businesses to be realistic this tax time.

“The tax office is unlikely to accept a deduction for a packet of Tim Tams eaten in your coffee break at home,” she says.

“As much as your colleagues like to see your pot plants, the ATO won’t accept claims for home-office décor.”

Consider bringing forward expenses

Small businesses may be eligible for tax deductions this financial year, in relation to prepaid expenses covering goods or services rendered in the next financial year.

According to professional services firm BlueRock, “monthly costs such as rent, electricity or wages can be prepaid and claimed at the end of the financial year for a period of up to 12 months, or an insurance premium for up to 12 months cover”.

For example, pre-paying 12 months of lease expenses, covering July 2023 to June 2024, could allow a small business to write off those costs in the present financial year.

Deductions may still apply to pre-paid expenses that do not satisfy the ’12-month’ rule, but businesses need to apportion those deductions over the “eligible service period” of those services or 10 years, whichever is less.

You can read more about those measures here.

Don’t spend on things you might not need

While bringing forward necessary expenses can have tax benefits, it’s important for small businesses not to spend on things they don’t actually need.

Splashing out on EOFY sales may net a small business further tax deductions, but leave its cashflow position in a worse place than before.

It’s an oldie, but a goodie: in 2017, Healthy Business Finances accountant Stacey Price told SmartCompany EOFY cash splashes should be limited to goods and services likely to immediately improve business performance or revenue.

“If I had extra cash to spend I’d pay myself a higher wage,” Price said. “I’d rather put it in my back pocket than spend it on something I don’t really need.”

Consider your own EOFY flash sale

With precious little time to spare before the June 30 deadline, it may be too late for businesses to launch a fully-fledged EOFY sale.

However, EOFY flash sales remain a valuable tool to get stock off your books.

“Consider offering limited-time discounts, bundle deals, or freebies to boost sales and encourage repeat business,” says Daniel Stoten, co-Founder and chairman of Localsearch.

“Leverage the power of email marketing to communicate these exclusive offers to your loyal customer base.

“This is also a great way to use up old stock or services, and prepare for the new financial year!”

Double-check for grants and tax incentives

The Technology Investment Boost and the Skills and Training Boost provide new opportunities for small business, but they certainly aren’t the only ‘bonus’ measures available.

There is still time to apply for grants that close at the end of the 2022-2023 financial year, which may benefit SMEs in the year to come.

Jo Elliott, owner of Joco Accounting, has encouraged small businesses to do a last-minute check.

“I always recommend regularly using the government grants and programs finder to see what is currently available to help support your business,” she said.

The government grant-finding site is accessible here.

Pay super ahead of time (if you still can)

While superannuation guarantee payments for the June quarter are due on July 28, only superannuation payments made to a worker’s superannuation fund before the end of the financial year are tax deductible for the business.

There is technically still time to make that happen, but it is heavily dependent on how long it takes a business’ nominated superannuation clearing house to actually funnel those contributions into a worker’s preferred fund.

“It’s almost too late now, unless you can ensure that that money has hit the fund,” Greco says.

This is not a new phenomena.

Speaking to SmartCompany in 2017, Murray Howlett, a partner at accounting firm Pilot Partners, said: “I’m forever seeing people surprised they don’t get the deduction when they haven’t paid their super by the end of the financial year”.