As we approach the end of the 2025 financial year, it’s the perfect time for business owners to review their tax position and implement strategies to legally minimise tax. One area that is often overlooked is Division 7A Loans, which can have significant tax implications if not managed properly. In this article, we explore practical tips for business tax planning and touch on important Division 7A considerations.

Business Tax Planning Tips for 2025

1. Superannuation Contributions (SGC)

• Superannuation is only deductible once paid and received by a complying fund.
• Contributions for the June 2025 quarter are due by 28 July, but if paid before 30 June, the business can claim a deduction in the 2025 financial year.
• Be aware: the SGC rate will increase from 11.5% to 12% as of 1 July 2025, impacting future payroll obligations.

2. $20,000 Instant Asset Write-Off

• Extended to 30 June 2025 for small businesses with turnover under $10 million.
• Eligible assets under $20,000 can be written off immediately.
• The write-off also applies to certain cost additions under simplified depreciation rules.

3. Write-Off Bad Debts

• Debts must be genuinely unrecoverable and physically written off before 30 June to be deductible.
• You may also be entitled to a GST adjustment on bad debts.

4. Review Fixed Assets for Obsolete Items

• Scrapping old or unused plant and equipment before year-end may allow for a tax deduction.

5. Valuing Closing Stock

• You can use the lowest of cost, market value or replacement cost for tax purposes.
• Choosing the lowest permissible value can help reduce taxable income.

6. Staff Bonuses

• For a bonus to be deductible, your business must be definitely committed to paying it by year-end.
• Ensure you have formal documentation (such as board minutes or signed approvals) before 30 June.

7. Prepaying Expenses

• Review any of your expenditure that is eligible for a discount if paid for the next year.
• Businesses with turnover < $50 million can prepay expenses with a service period of < 12 months and claim a deduction.
• All businesses can deduct prepayments required by law or under $1,000.

8. Accruing Expenses

• Expenses for services received by 30 June may be deductible even if invoiced after year-end, provided they can be reasonably estimated.

9. Consumables in Closing Stock

• Consumables (eg, spare parts) expected to be used within 3 months after year-end can be fully deductible in the year acquired as opposed to having to include the amount in closing stock.

10. Immediate Deduction for Business Start-Up Costs

• Costs related to setting up a business (eg, legal, accounting, incorporation fees) are deductible for new businesses started during the 2025 year.

11. Professional Firm Profits (PCG 2021/4)

• The ATO expects professional firm principals (eg, doctors, lawyers, engineers, real estate agents) to be taxed appropriately on their income.
• If you’re redirecting income to related entities, ensure you comply with PCG 2021/4, or you may face scrutiny.
• This guidance targets arrangements where individuals divert income from their personal services to an associated entity (like a trust or company), in a way that significantly reduces their overall tax liability. The ATO may review such structures if they believe income is not being taxed in the hands of the person who earned it.

Division 7A Loans – A Commonly Missed Risk Area

If your company has made loans or payments to shareholders or their associates, it’s crucial to address these before your 2025 company tax return is due:

1. New Loans Made in 2025

• These must be repaid in full or placed on a compliant Division 7A loan agreement (max 7-year term with interest) by the earlier of the due date or lodgement date of the 2025 company return.
• Failure to do so will result in the loan being treated as a deemed unfranked dividend and taxed in the hands of the shareholder or their associate.

2. Existing Div 7A Loans

• Ensure minimum annual repayments are made before 30 June 2025 to avoid triggering a deemed dividend.

3. Interest Rate Update

• The benchmark interest rate has increased to 8.77% for the 2025 financial year (up from 8.27% in 2024 and 4.77% in 2023).
• This means your minimum loan repayments may be significantly higher this year – we are actively reviewing client structures and loan arrangements to manage the increased cost.

Want to Plan Smarter?

Effective tax planning requires time and attention to detail. If you’d like tailored advice or a tax planning session before 30 June 2025, please reach out to our team.

Stay tuned for Part 3 of our Tax Planning Series, which will cover Trusts and key considerations for trustees and beneficiaries in preparation for year-end.