How to reduce your tax bill

The two simplest ways to do this are to reduce assessable income or increase deductible expenditure. Either way, the business’ taxable income (and thus the amount of tax payable) is reduced.

If your business reports income on a cash basis, one way to reduce assessable income for thecurrent income year is to delay sending an invoice to a customer until after 30June. Of course, cash flow issues may dictate otherwise.

If you are in the process of selling property and the profit will be taxable as a capital gain, you coulddefer the sale until the next income year – but remember that the liability to pay capital gains tax (CGT) arises when you exchange contracts and noton settlement.

You can increase deductible expenditure by bringing it forward from the next income year to the current income year. This is particularly useful where an immediate deduction is available — for example, for depreciating assets costing less than $20,000 if you are a small business which uses the simplified depreciation rules, start-up costs and certain prepaid expenses.

Charitable donations are a good way to increase your deductions. If you are not sure if a donation will be deductible, you can check the deductibility status of charities athttps://www.abn.business.gov.au/Tools/DgrListing. In certain circumstances, a deduction is available where trading stock is donated. Don’t forget to ask fora receipt.

What are the benefits?

If you are a sole trader or a partner in a partnership, the benefits of reducing your taxable income could include:

• reducing your marginal tax rate, for example, from 37% to 30%, or from 30% to 16%; and
• avoiding liability for the Medicare levy surcharge (MLS) (at least 1% of your income for MLS purposes) if you do not have appropriate level of private health insurance hospital cover.

In addition, the lowest marginal rate for individuals will decrease from 16% to 15% from 1 July this year, so there is a small benefit in taking steps that will reduce your taxable income this year but increase it for next year.‍

Tip!
As the end of the income year approaches, talk to your tax adviser about ways to minimise your tax bill.

Instant asset write-off

As things stand, the instantasset write-off threshold for small businesses (aggregated turnover under $10million) will drop from $20,000 for the current tax year (2025-26) to $1,000for the next tax year (2026-27) starting on 1 July. So if you intend to acquirea

depreciating asset valued atbetween $1,000 and $20,000, you should consider making the acquisition before30 June so you can write off the total amount this tax year.

Having said that, it wouldnot be a surprise if the Government extends the $20,000 threshold for at leastanother year. If the Government does this, it will probably be announced in the2026-27 Federal Budget which is to be handed down on Tuesday 12 May.