1 June

2025 Year-End Tax Planning:

Key Updates and Action Points for Small Business Owners

As the 2025 financial year draws to a close, small business owners are encouraged to review several legislative updates and practical tax planning measures.

These changes carry significant implications for how business income is reported, deductions are claimed, and risks are managed before 30 June.

This update outlines confirmed changes and critical steps you may need to take to optimise your position and maintain compliance.

Instant Asset Write-Off

The ability to claim an immediate deduction for the cost of eligible assets can significantly reduce taxable income.

After considerable delay, legislation has now passed confirming a $20,000 instant asset write-off for 2024–25.

Why it matters:

For small businesses acquiring low-cost assets, this deduction reduces tax payable in the current year and improves cash flow. It also interacts with the depreciation pooling rules, enabling a full write-off of low-value pools.

Key considerations:

Applies to small businesses with aggregated turnover under $10 million.
Available for assets first used or installed by 30 June 2025.
The $20,000 threshold applies per asset, excluding GST credits.
The simplified depreciation lock-out rules remain suspended for another year.
Assets used under long-term hire or leasing arrangements are excluded.
The legislation excludes any asset costing exactly $20,000. The cost must be strictly less than this amount.

Pooling Rules Are Mandatory

The simplified depreciation rules are an ‘all-in’ system. You cannot access the instant asset write-off without adopting the pooling approach for all eligible assets.

Why it matters:

Some businesses mistakenly attempt to isolate a single asset for the write-off. The pooling system requires full application to all assets and may result in a broader accounting impact.

Points to review:

Check for assets under lease or licence arrangements that may be excluded.
Pool balances under $20,000 (before current-year depreciation) can be written off in full.

Deductibility of ATO Interest

Interest charges such as the General Interest Charge (GIC) and Shortfall Interest Charge (SIC), which apply to late payments or understatements, will no longer be tax-deductible from 1 July 2025.

Why it matters:

Businesses often rely on deductions for ATO interest charges to soften the cost of cash flow timing issues or amended assessments. The removal of deductibility increases the real cost of non-compliance.

What to know:

GIC and SIC will not be deductible under section 25-5 after 30 June 2025.
Business owners may consider if a deduction remains possible under section 8-1, though this is untested and uncertain.
The ATO is unlikely to support broad deductibility under general principles.
Remitted GIC or SIC may still be assessable if a deduction was previously claimed.
GIC is only incurred once an assessment is issued—not when the interest starts accruing—making timing critical.

Division 7A Loans Obligations

Division 7A governs how private company loans to shareholders and associates are treated. Failure to comply can result in a deemed unfranked dividend, which is taxable to the recipient.

Why it matters:

With loan arrangements under scrutiny, ensuring repayments or formal agreements are in place is essential to avoid significant tax penalties.

Checklist:

Ensure minimum repayments under Division 7A complying loans are made by 30 June 2025.
Identify new loans made in 2024–25 for action in the following year.
Avoid circular repayments funded by the company itself, which may be disregarded under section 109R.

Dividends to Repay Division 7A Loans

Dividends may be used to repay Division 7A loans, but only if strict legal and documentation steps are followed.

Why it matters:

Improper set-off arrangements can be disregarded by the ATO, resulting in a deemed dividend and tax exposure.

Required steps:

Verify that the company constitution permits dividend set-off.
Prepare director resolutions and dividend statements.
Obtain written agreement between the company and borrower.
Maintain detailed records—journal entries alone are not sufficient.
Where loans are made to individuals (not shareholders), ensure correct trust declarations and resolutions are in place.

Trust Distribution Planning and Resolutions

Trustees must finalise income distribution resolutions before year-end. Mistakes or delays may result in trustee-level tax at the highest marginal rate.

Why it matters:

Discretionary trusts offer flexibility, but only if distributions are made correctly and in accordance with the deed. Incorrect appointments or late resolutions are common triggers for ATO audits.

Actions required:

Review trust deeds—some require earlier action than 30 June.
Confirm income and capital beneficiaries.
Verify family trust elections or interposed entity elections where relevant.
Check whether resolutions are required for fixed trusts.
Consider whether trust income can be streamed (e.g. franked dividends or capital gains) and ensure all compliance steps are met.

Trust Vesting Dates

Trusts have a fixed life and may vest on a set date. Once vested, discretionary powers cease and tax consequences can change.

Why it matters:

A trust that has vested may lose flexibility and may cause income to become assessable to a specific beneficiary by default.

Action:

Review upcoming vesting dates and obtain legal advice early if an extension is needed.

Trading Stock, Asset Scrapping and Bad Debts

Certain deductions may be lost if not reviewed before year-end. This includes scrapping obsolete assets, valuing trading stock strategically, and writing off bad debts.

Why it matters:

Year-end timing can accelerate deductions and assist with tax management.

Checklist:

Identify any scrapped or obsolete assets before 30 June.
Use the flexible trading stock valuation rules to reduce income.
Write off bad debts in accounting records before year-end to claim a deduction (subject to continuity of ownership or same business tests in companies and trusts).

Prepayments and Deferral of Income

Small businesses can bring forward deductions for prepayments and, in some cases, defer recognition of income received in advance.

Why it matters:

Effective timing can improve cash flow and tax efficiency.

Key points:

The 12-month rule allows full deduction of prepayments for businesses with turnover under $50 million.
Individual taxpayers may also access this rule if not carrying on a business.
Income received in advance may be deferred where there is a potential refund obligation (e.g. cancellation clauses).

Bonuses and Director Remuneration

For businesses planning to claim deductions for staff or director payments, eligibility depends on the obligation being incurred by year-end.

Why it matters:

Deductions may be available even if not paid by 30 June—provided entitlement is determined and communicated before then.

Steps to claim:

Decide and notify recipients of bonuses by 30 June.
Withhold PAYG and pay superannuation when paid.
Be cautious where related-party arrangements involve deferred timing beyond one year.

Work-From-Home Deductions

The fixed rate method has increased, but strict substantiation requirements apply.

Why it matters:

This is a common area of audit focus and many taxpayers fail to maintain adequate records.

To claim:

Keep a daily log of hours worked from home.
Use 70 cents per hour fixed rate for eligible expenses.
Shortcut method covers internet, mobile, electricity, and phone — no separate claims are permitted.

TFN Reporting and Trustee Beneficiary (TB) Statements

Trusts distributing income must comply with TFN reporting and possibly prepare TB statements if income is distributed to another trust.

Why it matters:

Non-compliance can result in ATO penalties and reputational risk, especially if distributing to related trusts.

Key obligations:

Report TFNs within one month of the end of the quarter in which provided.
Withhold tax if TFNs are not provided.
Lodge TB statements if distributing to another trust, unless a family trust election or interposed entity election applies.

Final Thoughts

With 30 June rapidly approaching, small business owners should ensure tax planning is finalised, loan repayments are made, trust resolutions are completed, and deductions are optimised.

Several measures outlined above are time-sensitive and require action now. Others will influence planning into the 2026 year and beyond.

If you would like help reviewing your tax position, please contact our team to ensure you are making the most of your opportunities and remaining compliant.

Pratt Partners – Tax & Advisory

Strategic tax guidance for small business owners.