1 July 2024 tax cuts

Beginning on 1 July 2024, there are large tax cuts available for the majority of individual taxpayers in Australia.

From 1 July 2024, the proposed tax cuts will:

• reduce the 19 per cent tax rate to 16 per cent

• reduce the 32.5 per cent tax rate to 30 per cent

• increase the threshold above which the 37 per cent tax rate applies from $120,000 to $135,000

• increase the threshold above which the 45 per cent tax rate applies from $180,000 to $190,000.

As the tax cuts apply to the next income year, the best strategy from a tax point of view is the reduce your taxable income in this tax year, when the tax rate is higher. However, the effects on liquidity must be kept in mind. The following options are available to you to reduce your income this year.

For small business entities (aggregated turnover less than $10 million) using simplified depreciation, the cost threshold of an asset for instant write-off has been reset to $20,000.

The $20,000 threshold will apply on a per asset basis — this means that you will be able to instantly write-off multiple assets.

Please note: this measure is still going through parliamentary approval to become law.

Businesses with annual aggregated turnover of less than $50 million will receive an additional 20% deduction for eligible expenditure on training employees, and investments that support energy-efficient practices and implementing energy-saving technologies.

The following incentives are available until 30 June 2024:

• Skills and training boost

• Efficient energy

Trustee resolutions are not accepted as giving rise to present entitlements for an income year unless they are made by 30 June 2024. Sometimes, this date may be earlier if required by the trust deed.

From 1 July 2024, the Superannuation Guarantee (SG) rate for compulsory superannuation contributions by employers will increase from the current 11% to 11.5%.

Trust income distributed to adult children

The ATO has advised that compliance resources will be dedicated to scrutinise arrangements where parents benefit from the trust entitlements of their adult children.

The ATO acknowledges circumstances where adult children by way of these arrangements repay expenses incurred in relation to their upbringing and other family costs that would ordinarily be met by the parents. Nonetheless, these arrangements will be closely monitored to ascertain if there is contemporaneous evidence of the claimed obligation.

Retention of funds by the trustee

A scenario where beneficiaries of a trust retain their distribution as working capital in a business that is run by the trustee, falls under ordinary dealings as long as there is “use of funds condition”. The beneficiary, in such a scenario, may be a private company that enters into a loan agreement with the trustee that complies with Div 7A.

These arrangements have been approved by the ATO will not be scrutinized.