2024 End of Financial Year (EOFY) Tax Update

As the end of the financial year approaches, several key tax updates and changes are coming into effect. Here’s a summary of the most important changes and deadlines, along with some key tax planning tips that may benefit you or your Group.

Small Business Incentives

There have been a range of measures implemented recently designed to provide financial assistance to small businesses, although we are still waiting for the legislation to be finalised for the Instant Asset Write Off (IAWO) and the Energy Incentive.

Instant Asset Write Off

As discussed in previous updates, the IAWO was proposed to provide small businesses with turnover below $10 million an instant deduction for the cost of assets up to $20,000 in the 2024 financial year.

However, the proposal has been stuck in parliament due to recommendations to increase the threshold to $30,000 and expand eligibility to businesses with turnover of less than $50 million, which were subsequently rejected. As a result, the legislation has been going back and forth between the Senate and the House.

This has meant that we are unfortunately still awaiting the legislation on this to be finalised as we quickly approach 30 June. We are hopeful that the $20,000 threshold will ultimately be confirmed when parliament sits next week for the final time before the end of the financial year.

Small Business Energy Incentive

A flow-on effect of the debate in parliament over the IAWO is that other measures have also been held up, including the Small Business Energy Incentive which was announced in the 2023-2024 Federal Budget.

This measure has been covered in our previous newsletters, but the incentive broadly provides a bonus 20% tax deduction on the cost of depreciating assets or improvements which support electrification or more efficient energy use and are installed ready for use before 30 June 2024 (capped at $100K spend, i.e. $20K bonus tax deduction).

Further information on the Energy Incentive can be found in our October 2023 Update.

Discretionary Trust Distribution Resolutions

Trust Deeds of most discretionary trusts require the trustee to make a determination on or prior to 30 June each year to determine how the net income of the trust is to be distributed.

In conjunction with your advisor, you should carefully consider:

• The requirements of the Trust Deed;
• The income of the trust for the year; and
• To which beneficiaries – and in what proportions – the income will be distributed.

Trustees now have additional matters to manage at year-end with the ATO’s guidance on “Section 100A”. Broadly, Section 100A is concerned with arrangements whereby distributions are made to lower taxed beneficiaries, non-resident beneficiaries or loss trusts, but where the distribution is never physically paid. As such the benefit is enjoyed by another person or entity in the Group, rather than the beneficiary that was made entitled to the income. An example of this is where distributions are made to adult children but are never paid.

ATO Focus Areas – 2024 Tax Returns

The ATO have flagged that the following areas will be a focus during tax-time:

• Rental Property Deductions – If your investment property has not been available for rent the entire year, have deductions been pro-rated accordingly? Have you refinanced during the year, amalgamated loans or borrowed additional funds? The ATO are on the lookout for deductions that may be overstated or relate to private purposes.
• Rental Property Income – The ATO will also be targeting any unreported non-commercial rental income from holiday homes and investment properties (e.g. through platforms such as AirBnB).
• Work-Related Expenses – The ATO will continue to scrutinise work-related expense claims that are above the average for the relevant industry/occupation, with a focus on ensuring taxpayer’s have the substantiation to back up their claims.

• Capital Gains Tax Data Matching – Have you sold cryptocurrency or transferred between cryptocurrencies within your crypto wallets? Have you sold units, or transferred shares to your spouse? These actions trigger CGT events and may have unanticipated tax implications. Through the ATO’s data matching capabilities, it is likely that these kinds of transactions will be picked up if they are left unreported.

Maximising deductions

As they say, timing is everything. It can be worthwhile to ensure you’ve maximised your deductions before 30 June in order to reduce your tax payable for this financial year. This year it is especially relevant for individuals, seeing as individual tax rates are decreasing from 1 July 2024. This means that claiming tax deductions in the 2024 financial year should result in a greater tax benefit than if claimed in the 2025 financial year.

Some key areas where deductions can be maximised include:

• Superannuation contributions – Contributions are not deductible until paid and received by the complying superannuation fund. Look to pay super contributions prior to 30 June to enable a tax deduction in the current financial year. Some clearing houses can take more than a week to submit the payment to the super fund, so always check with your specific clearing house for year-end cut off dates. 
• Repairs – Prior to 30 June may be an opportune time to have any plant and equipment in need of service or repairs attended to in order to capture the tax deductions this side of 30 June.
• Bad debts – Review your trade debtors and consider whether all are recoverable. Consider writing off any non-recoverable amounts as a bad debt to claim the tax deduction this financial year.
• Trading Stock – Complete a stock take at 30 June. Write off any obsolete or damaged stock, and where the market selling value is less than the cost of the stock, look to write down the stock to the lower value.
• Staff Bonuses – For accrued staff bonuses to be deductible on this side of 30 June, the decision to pay the bonus and the determination of the bonus must be made and documented prior to 30 June.
• Donations – Determine whether you can make any tax-deductible donations before the end of the financial year. For a donation to be tax-deductible, the charity must be registered as a Deductible Gift Recipient (“DGR”). You can confirm DGR status by searching the entity on the Australian Business Register.

Review and Vary PAYG Instalments

Many businesses progressively pay PAYG instalments throughout the year towards their estimated tax liability for the current year. Where businesses experience a decrease in profit relative to the prior year, this can result in additional PAYG instalments being paid throughout the year. Whilst any overpayment of income tax will be reconciled upon lodgement of the tax return, the payment of additional tax can put pressure on the working capital requirements of the business.

June is an opportune time to review the businesses expected tax liability and vary the June instalment to reduce the instalment payable or claim back any excess instalments paid during the year.

Assess Eligibility for Vacant Residential Land Tax Holiday Home Exemption

Although not strictly year-end related, we know a lot of our clients have been keeping a keen eye out for this announcement. After months of waiting, the Victorian government finally confirmed that holiday homes held in a company or trust will be exempt from Vacant Residential Land Tax (“VRLT”) under the holiday home exemption, subject to the following key conditions:

• The land was held in the company or trust (or contract of purchase entered into) on or before 28 November 2023.
• Any subsequent changes in the ownership interests of the company or trust is between relatives.
• There must be an individual who has a principal place of residence (“PPR”) in Australia other than the holiday home in question, with an ownership interest in the landholding entity as follows:
  • Where the landholding entity is a discretionary trust – be a specified beneficiary or the relative of a specified beneficiary.
  • Where the landholding entity is a company or unit trust – a minimum ownership interest of 50%.
• The land must be used and occupied as a holiday home for at least 4 weeks in total in a calendar year by the individual person referred to in the point above or their relative.

Broadly, from 1 January 2025, residential properties in Victoria left vacant for more than 6 months of the preceding year may be subject to VRLT at a rate of 1% of the property’s capital improved value. That is, unless an exemption applies, such as the holiday home exemption.

Therefore, if you’re a holiday home owner it is important to assess sooner rather than later whether the holiday home exemption applies to you. If the exemption doesn’t apply, in order to avoid VRLT from 1 January 2025, the property must be occupied (e.g. rented out through some form of leasing arrangement) for at least 6 months in the 2024 calendar year.

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The above tax summary is intended to be general in nature. Should you believe that any of the above matters may be relevant to you or your Group’s particular circumstances, please discuss the specific details with your Slomoi Immerman Partners advisor.