With June 30 rapidly approaching, now is the critical time for small business owners to implement effective tax planning strategies. The decisions you make in the next few months can significantly impact your tax position for the entire financial year.
Tax planning isn't about aggressive tax avoidance or questionable schemes. It's about making smart, legitimate business decisions that minimize your tax liability while ensuring complete compliance with Australian tax laws.
In this comprehensive guide, we'll outline actionable strategies that small business owners should consider before the end of the financial year to optimize their tax position.
Why Tax Planning Matters for Small Businesses
Effective tax planning delivers several key benefits for small businesses:
- Cash Flow Improvement: By legitimately reducing your tax liability, you free up cash for business operations, investment, or growth
- Risk Reduction: Proper planning minimizes the risk of ATO scrutiny and potential penalties
- Business Insights: The planning process often identifies business inefficiencies and opportunities for improvement
- Strategic Timing: Controlling when income is received and expenses are incurred can significantly impact your tax position
Important Note for 2024-2025 Financial Year
The 2024-2025 financial year has seen several significant changes to small business taxation, including adjustments to the instant asset write-off thresholds, updated small business entity concessions, and revised loss carry-back rules. All strategies in this article reflect these latest changes.
Time-Sensitive Strategies: Act Before June 30
The following strategies require action before the financial year ends on June 30, 2025:
1. Leverage the Instant Asset Write-Off
The instant asset write-off allows eligible businesses to claim an immediate deduction for the business portion of the cost of an asset in the year it's first used or installed ready for use.
Current thresholds for 2024-2025:
- For small businesses with an aggregated turnover below $10 million: $20,000 per asset
- For medium-sized businesses with an aggregated turnover of $10 million to less than $50 million: $1,000 per asset
Key considerations:
- The asset must be first used or installed ready for use before June 30, 2025
- The threshold applies on a per-asset basis, not a total purchase basis
- Both new and second-hand assets qualify
- The business portion of the asset cost must be below the relevant threshold
Action items:
- Review your equipment needs and identify assets that need replacement or upgrading
- Ensure assets are delivered and installed before June 30, 2025
- Maintain proper documentation including invoice, proof of payment, and evidence of when the asset was first used or installed
2. Prepay Deductible Expenses
Small businesses can claim immediate deductions for prepaid expenses where the payment covers a period of 12 months or less and that period ends in the next financial year.
Eligible prepayments may include:
- Rent for business premises
- Insurance premiums
- Subscription services (software, industry memberships, etc.)
- Interest on business loans (up to 12 months in advance)
- Professional association fees
- Marketing and advertising expenses
Key considerations:
- The prepayment rule only applies to expenses covering 12 months or less
- The service period must end before June 30, 2026 (i.e., within the next financial year)
- This strategy works best if you expect to be in the same or higher tax bracket next year
Example: Insurance Prepayment
If your business insurance is due for renewal in July 2025, you could prepay the annual premium in June 2025. This would allow you to claim the deduction in the 2024-2025 financial year rather than spreading it across 2025-2026.
3. Maximize Superannuation Contributions
Making superannuation contributions can be an effective way to reduce taxable income while building retirement savings.
For business owners:
- Concessional (before-tax) contributions are taxed at 15% within the super fund, which is likely lower than your marginal tax rate
- The concessional contributions cap for 2024-2025 is $30,000 per person (or $35,000 for those aged 50 and over)
- Personal super contributions are tax-deductible if you meet certain criteria
For your employees:
- Super contributions for employees are deductible if paid by June 30, 2025
- You must actually make the payment by June 30, not just accrue it in your accounts
- Failing to pay super on time can result in the Superannuation Guarantee Charge, which is not tax-deductible
Key considerations:
- Super contributions must be received by the fund before June 30, 2025, to be deductible this financial year
- Allow several business days for processing, especially if making electronic transfers near the end of June
- If making personal super contributions, you must lodge a notice of intent to claim a deduction with your super fund
4. Review Inventory and Stock
End-of-year stock decisions can have significant tax implications:
Write off obsolete stock:
- Identify and write off any obsolete, damaged, or slow-moving stock before June 30
- Document evidence of the stock's status and the write-off decision
- Physically dispose of or scrap the items where appropriate
Stocktake strategy:
- Businesses with turnover under $10 million can choose not to conduct a formal stocktake if the change in stock value is less than $5,000
- Consider whether to use this simplified option or conduct a full stocktake
Valuation method:
- Review your inventory valuation method (cost, market selling value, or replacement value)
- Once chosen, the valuation method should be applied consistently unless there are sound commercial reasons for a change
5. Defer Income Where Possible
If practical, consider deferring income until after July 1, 2025, to push the tax liability into the next financial year:
Potential strategies include:
- Delaying issuing invoices until early July for work completed in late June
- Postponing asset sales until the new financial year
- For service businesses, timing the completion and billing of projects
Key considerations:
- This strategy is more beneficial if you expect to be in a lower tax bracket next year
- Cash flow impact must be carefully considered
- Artificial deferral arrangements may be scrutinized by the ATO
Warning: Income Deferral
While timing discretionary income is legitimate, creating artificial arrangements purely for tax deferral can attract ATO attention. Ensure any deferral has genuine commercial substance and documentation.
6. Write Off Bad Debts
If you have debts that are unlikely to be recovered, writing them off before June 30 can provide a tax deduction:
Requirements for a deductible bad debt:
- The debt must have been previously included in assessable income
- You must determine the debt is bad (uncollectible) before year-end
- There must be documentary evidence of the debt write-off decision
- The debt must actually be written off in your accounts before June 30
Documentation needed:
- Minutes of a director's meeting authorizing the write-off
- Evidence of attempts to recover the debt
- Documentation showing why the debt is considered uncollectible
Strategic Business Structure Considerations
Beyond immediate end-of-year strategies, now is also an excellent time to review your overall business structure:
Small Business Structure Comparison
The tax implications of different business structures have changed with recent updates. Here's a current comparison:
| Structure | 2024-2025 Tax Rates | Key Advantages | Potential Disadvantages |
|---|---|---|---|
| Sole Trader | Individual marginal rates (0-45%) | Simplicity, full control, lower compliance costs | Unlimited liability, potentially higher tax rates |
| Partnership | Partners taxed at individual rates | Shared resources, easy profit distribution | Joint and several liability, partner disputes |
| Company | 25% for small business entities 30% for other companies |
Limited liability, potential lower tax rate, retention of profits | Higher compliance costs, complex profit extraction |
| Trust | Beneficiaries taxed at their rates | Flexible distribution, asset protection | Complex administration, potential for high tax on undistributed income |
Recent Changes to Small Business Entity Concessions
Small business entity concessions have been updated for the 2024-2025 financial year:
- The turnover threshold remains at $10 million for most small business concessions
- The corporate tax rate for small business entities is 25%
- Simplified trading stock rules, depreciation rules, and GST accounting methods are available
- Small business restructure rollover relief allows eligible businesses to change structures without immediate tax consequences
Restructuring Consideration
If you're considering restructuring your business, seek professional advice well before June 30. Implementing a new structure involves significant planning and documentation, and rushing this process can lead to costly mistakes.
Loss Utilization Strategies
If your business has experienced losses, strategic planning can help optimize their tax value:
Temporary Loss Carry-Back for Companies
The loss carry-back measure allows eligible corporate tax entities to carry back tax losses to offset previously taxed profits:
- Companies can offset current year losses against profits from prior years
- This creates a refundable tax offset up to the amount of earlier income tax liabilities
- The offset is limited by the company's franking account balance
Loss Carry-Forward Rules
Businesses can carry forward losses to offset against future profits if they satisfy either:
- The Continuity of Ownership Test (COT), or
- The Business Continuity Test (BCT) if the COT is failed
Review any prior year losses to ensure they remain available for use under these tests.
End of Financial Year Checklist
EOFY Action Items for Small Business Owners
-
Purchase Necessary Business Assets
Identify and acquire eligible assets under the instant asset write-off before June 30.
-
Prepay Deductible Expenses
Identify expenses that can be prepaid for up to 12 months and pay them before June 30.
-
Make Superannuation Contributions
Ensure all employee super contributions are paid and consider making personal super contributions.
-
Review and Write Off Bad Debts
Identify uncollectible debts and formally write them off with proper documentation.
-
Conduct Stocktake or Use Simplified Method
Decide whether to conduct a full stocktake or use the simplified method if eligible.
-
Identify and Write Off Obsolete Stock
Document and dispose of obsolete, damaged, or unsellable inventory.
-
Review Employee Expenses
Ensure all employee expenses (bonuses, commissions, director fees) are paid or properly accrued.
-
Document All Transactions
Ensure all business expenses have proper documentation and can be substantiated if questioned by the ATO.
-
Consider Revenue Timing
Where commercially appropriate, consider the timing of income recognition.
-
Reconcile Key Accounts
Reconcile payroll, GST, and other key accounts to ensure accuracy and completeness.
Key Dates: Tax Planning Timeline
Mark these important dates in your calendar to stay on track with your tax obligations:
Quarter 3 Activity Statement Due
Lodge and pay Quarter 3 (January-March) Business Activity Statement.
Begin EOFY Tax Planning
Ideal time to start implementing tax planning strategies before the June rush.
Quarter 3 Super Guarantee Due
Last day to pay superannuation guarantee contributions for Q3 (January-March).
Implement Major Tax Strategies
Critical window to implement asset purchases, prepayments, super contributions, and other strategies.
End of Financial Year
Final deadline for implementing tax planning strategies for the current financial year.
Quarter 4 Super Guarantee Due
Last day to pay superannuation guarantee contributions for Q4 (April-June).
Quarter 4 Activity Statement Due
Lodge and pay Quarter 4 (April-June) Business Activity Statement.
Tax Return Deadline
Due date for self-lodging tax returns. Extended deadlines apply for returns lodged through registered tax agents.
A Word of Caution: Avoiding ATO Red Flags
While implementing these strategies, be aware of common issues that may trigger ATO attention:
Common ATO Audit Triggers
- Private expenses claimed as business deductions: Ensure strict separation between personal and business expenses
- Artificially contrived arrangements: Tax strategies should have genuine commercial substance
- Inconsistent treatment of income and expenses: Maintain consistency in your accounting methods
- Unusually high deductions: Be prepared to substantiate claims that are higher than industry norms
- Missing or inadequate documentation: Maintain records for all claimed deductions
The key principle is that tax planning should involve legitimate business decisions that have real commercial purpose beyond tax benefits.
How Taxo.au Can Help Your Small Business
Navigating the complexities of small business taxation requires expertise and the right tools. At Taxo.au, we provide:
- Specialized Small Business Tax Platform: Our online system is specifically designed for Australian small businesses
- Year-Round Tax Planning Support: Access to expert advice throughout the year, not just at tax time
- Automated Deduction Finder: Our system identifies legitimate deductions you might otherwise miss
- Document Management: Secure storage for receipts, invoices, and other important documentation
- Tax Calendar and Reminders: Never miss an important deadline with our automated notification system
- Registered Tax Agent Review: Every return is reviewed by a registered tax agent for accuracy and compliance
Whether you're a sole trader, partnership, trust, or company, our platform adapts to your specific business structure and needs.
"The most effective tax planning happens year-round, not just in June. Small business owners who take a proactive approach to their tax affairs consistently achieve better outcomes."
Conclusion: Taking Action Now
With June 30 approaching, now is the critical time to implement these tax planning strategies. While some of these strategies can be executed quickly, others require more lead time and careful consideration.
We recommend reviewing this guide with your tax professional to determine which strategies are most appropriate for your specific business circumstances.
By taking a proactive approach to tax planning, you can ensure your business only pays what it's legally required to while maximizing available deductions and concessions.
Remember, effective tax planning isn't about aggressive tax minimization—it's about making smart business decisions that happen to have positive tax outcomes.
