Reducing Tax in 2025

As we approach the end of the financial year, it's crucial to discuss strategies that can help you reduce your tax bill and increase your wealth before 30 June 2025. Here are some key priorities to consider:

Maximising Superannuation Contributions

Utilise carry-forward amounts from previous years to make significant contributions to your super. This can help you save on taxes and boost your retirement savings.

Sale of Business Assets

Consider selling business assets that were previously fully expensed under temporary full expensing rules to create taxable income strategically.

Trust Distributions

Review the allocation of trust distributions to adult children or parents based on the latest ATO Tax Rulings to optimise tax benefits.

Bringing Forward Deductible Expenses

Accelerate deductible expenses where possible to reduce taxable income for the current financial year.

Deferring Taxable Income

Delaying receipt of income to future years can help manage tax liabilities more effectively.

Managing Capital Gains

Be mindful of capital gains implications and consider strategies to minimise tax on capital gains.

Utilise Instant Asset Write-Off

Take advantage of the $20,000 instant asset write-off to deduct the full value of eligible asset purchases.

Family Trust or "Bucket Company"

Consider utilising a Family Trust or a "bucket company" structure to cap your tax rate at lower levels, such as 25% or 30%.

Tax Deduction Opportunities with Superannuation

Making voluntary super contributions can offer excellent tax benefits. Here's a breakdown of how different super contributions are taxed. This is tax planning advice, not financial advice.

Concessional Contributions

Concessional (before tax) super contributions include employer super contributions made on your behalf, any salary sacrifice contributions you make, or any personal contributions 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 $30,000 per year), provided your annual earnings combined with superannuation contributions are less than $250,000 annually.

Personal super contributions benefit individuals with higher marginal tax rates or those whose employer refuses to establish 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 the Medicare Levy rises to 32%. Claiming a tax deduction on super contributions effectively makes your tax rate only 15%. That's a significant tax saving!

Catch-Up Contributions

If you haven't maximised your super contributions in previous years, you can make "carry-forward" contributions to catch up on unused limits.

Suppose you haven't made maximum annual super contributions in any year from 2020 onward. In that case, 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.

Tax Treatment for Low and High-Income Earners

• Low-income earners benefit from the low-income superannuation tax offset, ensuring they don't pay more tax on contributions than their income tax rate.

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

  • Individuals who earn between $45,400 and $60,400 during the 2025 financial year may also be eligible for 50 cents-for-each-dollar government super co-contributions, up to a maximum of $1,000 in non-concessional (after-tax) contributions.

    
    

• High-income earners face additional tax on concessional contributions above certain thresholds:

  • 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 that make your total income exceed $250,000 are subject to the additional tax.

  • Suppose your concessional contributions exceed the concessional contributions cap of $30,000 per year. In that case, 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 withdraw some of the excess contributions to pay the additional tax.

Trust Distribution Resolutions

For those with a Family Trust, completing Trust Distribution Resolutions before 30 June 2025 is crucial to avoid higher tax rates on trust profits. Although preparing a Trust Distribution Resolution before the end of the financial year can be complex, we are here to help you comply with the trust taxation laws. Our assistance includes reviewing prior resolutions, estimating trust income, analysing trust deed clauses, advising on tax-efficient distribution, and preparing resolutions promptly.

I'm always here if you need guidance or have questions; click here to book a time that works for you, or feel free to call me on 0439 030 850.

Let's talk

Tim Goode

Managing Director | Ignite Accountants