Top Tips for Tax Planning & Reduction: Profits, Superannuation & Trusts

Imagine what you could do with your tax saved.

You could:

Reduce your home loan.
Top up your Super.
Save for the holiday you’ve dreamt of.
Deposit for an Investment Property.
Pay for your children’s (or grandchildren’s) education.
Upgrade your car or home (why not?)

In this post, we’ll explore effective strategies to potentially reduce your tax liability and discuss how best to utilise your savings.

You’ll learn about optimising your superannuation, the practical use of family trusts, and the advantages of incorporating a ‘bucket company’ into your financial planning.

Why Reduce Your Tax Now

Yes, the end of financial year approaching FAST.

Yes, NOW is the time to discuss your 2024 tax reductions with your business accountants before 30 June 2024.

Yes, let’s GROW your wealth.

Ok, so what?

Speak to the Rubiix team, your friendly business accountants on key priorities including:

Sale of business assets (creating taxable income) where you previously claimed 100% of their purchase price as a tax deduction using temporary full expensing.
Reviewing whether you can still allocate trust distributions (from your Family Trust or Discretionary Trust) to adult children or parents as a result of the newly released ATO Tax Rulings.
Maximising superannuation contributions – and using carry-forward amounts from prior years if applicable to make even larger superannuation contributions.
Bringing forward deductible expenses.
Deferring taxable income.
Managing capital gains.
Using a Family Trust or a “bucket company” to cap your tax at 25% or 30%.

"Cap" Tax Using a "Bucket Company"

In the lead up to 30 June 2024, we want you to know why using a “bucket company” can be a great strategy for saving tax on trust profits distributed with your business accountants.

PROFITS FROM A TRUST

Do you have a Discretionary or Family Trust that generates profits? If yes, then this strategy may apply to you.

A “bucket company” allows you to “cap” the tax on profits distributed by a trust to 30% or 25%. This is much less than the individual top marginal rate of 47%!

Here’s how it works:

Assume a trust earns $250,000 in profits from business.

Option 1:

Distribute profits 50 / 50 to Individuals 1 and 2. Total tax (inc. Medicare Levy) payable = $66,734 (26.7%)

Option 2:

Distribute $90,000 each to Individuals 1 & 2 and distribute balance of $70,000 to a “bucket” company at a 25% tax rate. Total tax payable = $60,534 (24%).

(Note: This strategy assumes that the $70,000 in cash is available to be distributed to a bucket company, otherwise what is known as a Div 7A Loan Agreement will need to be entered into and loan repayments made over a 7-year period.)

The VALUE of this strategy is $7,100 in TAX SAVED!

The cash in a “bucket company” can be used to invest in shares, property, or to lend to other entities at a specific interest rate.

IMPORTANT: Please discuss this with us BEFORE you do it. There are different tax laws that affect the use of this strategy, and whether your “bucket company” can use a tax rate of 30% or 25%.

As your Rubiix business accountants, we‘re aware of these tax laws and can make this easy for you.

Superannuation Tax Opportunities

When you retire, your superannuation is likely to become an important source of your income.

That’s why you must top it up while you are working.

But did you know, there are also some excellent tax benefits you can take advantage of right now – just by making your own voluntary superannuation contributions?

Generally, money invested in super is taxed at a lower rate than your personal income tax rate.

In the lead-up to 30 June 2024, we want you to be aware of opportunities to save tax with super contributions.

TAX BENEFITS FROM SUPERANNUATION CONTRIBUTIONS

There are several ways you can get tax benefits from super contributions:

How "Concessional" Super Contributions are Taxed

Concessional (before tax) super contributions include:

employer super contributions made on your behalf,
any salary sacrifice contributions you make,
or any personal contributions that you claim a tax deduction on in your tax return.

These contributions are taxed at 15% when they are received by your super fund (up to a limit of $27,500 per year for 2024 and $30,000 per year in 2025), provided your annual earnings combined with superannuation contributions are less than $250,000 annually.

Personal super contributions are especially useful for people who are on higher marginal tax rates or if their employer refuses to set up a salary sacrifice arrangement.

The people who would benefit the most are those who earn above $45,000 per year, as this is where the marginal tax rate plus Medicare Levy rises to 34.5%.

Claiming a tax deduction on super contributions effectively makes your tax rate only 15%. That’s a huge tax saving.

Catch Up Super Contributions

If you haven’t made maximum annual super contributions in any year from 2019 onward, you can make “carry-forward” concessional super contributions if you have a total superannuation balance of less than $500,000.

You can access their unused concessional contributions caps on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

HOW LOW-INCOME EARNERS ARE TAXED

If you’re a low-income earner (earning up to $37,000 per year), the low-income superannuation tax offset ensures that you don’t pay a higher rate of tax on your super contributions than your income tax rate.

The offset will be paid directly to your super account and the payment will be equal to 15% of your concessional contributions for the year, capped at a maximum of $500.

Individuals who earn between $43,445 and $58,445 during the 2024 financial year may also be eligible for super co-contributions from the government of 50 cents for each dollar, up to a maximum of $1,000 in non-concessional (after tax) contributions.

HOW HIGH-INCOME EARNERS ARE TAXED

If you earn more than $250,000 a year (including super contributions), your concessional contributions are taxed at an additional 15%, bringing the total tax on these contributions to 30%.

However, this is still less than your marginal income tax rate of 47%. This extra 15% is known as Division 293 tax. Only the concessional contributions which make your total income exceed $250,000 are subject to the additional tax.

If your concessional contributions exceed the concessional contributions cap of $27,500 per year, the excess is included in your tax return and taxed at your marginal tax rate (less an allowance for the 15% already withheld by your super fund).

You can choose to withdraw some of the excess contributions to pay the additional tax.

Urgent for Trusts: Avoid extra tax with a Trust Distribution Resolution

Do you have a Discretionary Trust also known as a Family Trust?

If yes, keep reading to complete your Trust Distribution Resolutions before 30 June.

Avoid paying extra tax of up to 47% of Trust profits.

HOW TO AVOID PAYING EXTRA TAX

If a Trustee of a Trust fails to make a resolution to distribute the income of the Trust before the end of the financial year, the Trustee may be assessed by the Australian Taxation Office (ATO) on the Trust income at the highest marginal tax rate of 47%, rather than the intended beneficiaries being taxed at generally much lower tax rates.

HOW WE CAN HELP YOU

Even though preparing a Trust Distribution Resolution before the end of the financial year can be quite complex, we need to help you to comply with the trust taxation laws.

WHAT’S INVOLVED IN TRUST DISTRIBUTION RESOLUTION

Review of your prior year Trust Distribution Resolution
Confirmation with you of the estimated Trust income of your Trust for the year ended 30 June 2024
Review of your Trust Deed to ensure that the income definition and distribution clauses in your Trust Deed allow the proposed Trust Distribution Resolution for 30 June 2024
Advice on the most tax effective distribution of this estimated Trust income
Preparation of Trust Distribution Resolution and ensuring it is signed by the Trustees PRIOR to 30 June 2024

Next Steps To Reduce Your 2024 Tax

Contact our friendly Rubiix business accountants today to book your Tax Planning meeting before 30 June 2024.

Whether you want to discuss tax savings with superannuation contributions, trusts, or want the most out of your tax reductions this year, you can rely on us to help you save on your tax.

The sooner we start, the sooner we can help you save your 2024 tax and allow enough time to implement tax saving strategies, to help you grow your wealth and financial freedom.

Think reductions. Think Rubiix.

Disclaimer:

This post is for informational purposes only and does not constitute tax, legal, or accounting advice. Each individual’s or company’s financial situation is unique, and readers should consult with Rubiix Business Accountants or another professional advisor for advice tailored to their specific circumstances.

Tax laws are complex and subject to change, which can affect the strategies mentioned in this post.

Rubiix Business Accountants does not accept any responsibility for any loss which may arise from reliance on information contained in this post.

Please note that the tax savings strategies discussed should be reviewed by a tax professional and are based on laws applicable as of the date of this post.

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