Accounting for your business income

You might be able to bring forward or delay your invoicing (depending on your situation). Whether your business income is assessable for tax purposes comes down to your legal arrangements. Generally, you’ll recognise income for tax when you’ve done everything needed to earn it and created a recoverable debt. This might not be the same time you send an invoice or get paid. Take a look at any accrued or unearned income—they might need a review to work out when the amounts are assessable for tax.

Treatment of grants, bounties and subsidies

Some government grants count as regular income for tax, while others might be non-assessable. It’s important to check if your grant is taxable, and if it is, when you need to recognise it for tax. Make sure you retain documentation showing which program the payment came from—this helps prove if it’s non-assessable, non-exempt (NANE) income.

Foreign income and foreign currency amounts

If you’ve got income in a foreign currency, you’ll need to convert it to Australian dollars using the exchange rate set by the tax rules.

In addition, if you’ve got a bank account or do business in a foreign currency, you might need to include any foreign exchange gains when calculating your taxable income.

Claiming tax offsets for foreign taxes paid

If you received income that has been subject to foreign tax (regardless of when the tax is paid), you should determine whether you need to gross-up the income for the foreign tax and whether a FITO can be claimed to reduce the Australian tax on such income.

Review major expenditure for deductibility

Take a good look at your main expenses and make sure there aren’t any risks that some costs might not be deductible. It is also worth checking if there’s a specific deduction rule you can tap into.

In most cases, you can claim a deduction when you incur a loss or outgoing. But there are exceptions—like fines or penalties (no deductions there) or situations where deductions get pushed to a later year (think prepayments, accrued expenses, leave entitlements or bonus payments). Keep an eye out so you know what you can, and can’t, claim.

Bad Debts

Review debts owing to the company to determine if a bad debt deduction can be obtained by writing the debt off prior to year end. To obtain a bed debt deduction, the debt must be bad and must be formally written off as such. Consideration of satisfying continuity of ownership or similar business test must also be taken into account.

Depreciation and Instant Asset Write-Off

Instant asset write-off is available for small businesses with an aggregated turnover less than $10 million that apply the simplified depreciation rules. The limit is up to $20,000 per asset and the asset must be acquired and held for use prior to 30 June 2025.

Review employee bonuses provisions

You can only claim a deduction for an employee bonus if, by 30 June, you’re locked in to pay it—for example this can be evidenced by a Director’s Resolution. No firm commitment means no deduction this year.

Superannuation

Consider paying superannuation contributions prior to 30 June 2025 ensuring that contributions are received by the superannuation fund before 30 June.

Review deductions incurred in earning foreign income

Take a look at any deductions you’ve claimed for earning foreign income. Usually, you cannot claim a deduction for costs linked to exempt or non-assessable, non-exempt (NANE) income. But there are a couple of exceptions—like debt deductions for income you’ve already been assessed on under the CFC rules, or foreign non-portfolio equity distributions paid to a company. Just make sure you’re on top of what’s allowed and what’s not.

Franking Account

Review franking account balances to avoid franking deficit tax and to ensure sufficient franking credits are available to enable the payment of franked dividends prior to 30 June 2025.

Loss Utilisation

If you’re looking to utilise prior year tax losses, make sure your company passes the continuity of ownership test and the business continuity test (which includes the same and similar business tests).

TOFA

Consider whether the TOFA provisions will start to apply to you. These provisions are complex in nature, but they do allow taxpayers to make elections that align the accounting and tax treatment of financial instruments. This can simplify compliance but may also bring forward the tax point of certain items.

Research & Development (R&D) Tax Incentive

Depending on its size, a company undertaking eligible R&D activities may qualify for either a refundable R&D tax offset of between 43.5% and 48.5% (for smaller entities with an aggregated turnover of less than $20 million) or a non-refundable tax offset of between 38.5% and 46.5% (for all other entities). The amount of the offset is linked to the company’s corporate tax rate and proportion of R&D expenditure for the year.

The company’s business records must be sufficient to verify the nature and eligibility of the R&D activities, the amount of expenditure incurred on those activities and the relationship between the expenditure and the R&D activities. These records should have been maintained contemporaneously.

Pay-As-You-Go Income Tax Instalments

Determine whether the PAYG instalment for the final quarter of the year can be varied due to level of profit.

Division 7A Considerations

Where a private company pays an amount, makes a loan or forgives a debt owed by a shareholder or their associate (and ex-associate in some cases) a Division 7A deemed dividend may arise equal to the value of the benefit provided. The use of a company’s assets (e.g. a company car) for private purposes at less than their market value can constitute a payment for these purposes. You should identify all transactions between a company and any associated entity (individual, trust, company or partnership).

Where dividends need to be declared by 30 June to enable minimum yearly repayments to be made, ensure necessary resolutions are made and offset agreements entered into before year end.

Making Tax Consolidation Choice on Time

If you are making a choice to consolidate, you need to record your choice in writing and lodge a separate notification form with the ATO. Both the notification form and the choice to consolidate from a particular date must be made by the time the tax return for the year in which the date occurs is lodged. You will also need to consider whether tax funding and tax sharing agreements are put in place before (or close to) year-end.

Cross-border Tax Considerations

The ATO continues to target international transactions through its Tax Avoidance Taskforce, targeting multinationals. The below matters are areas in which the ATO continues to target.

Transfer Pricing

Consider whether the transfer pricing rules may apply to your cross-border dealings. Typical dealings include loans to or from related parties located in an overseas jurisdiction and the provision (or acquisition) of goods or services to or from such related parties.The transfer pricing provisions apply where, under a cross border arrange, parties do not deal at arm’s length. Therefore, ensure documentation is available that supports arm’s-length pricing for cross-border transactions as penalties for non-compliance can be significant.

Determine if you are a Significant Global Entity (“SGE”)

An SGE is anyone with annual income of $1 billion or more—or if you’re part of a group that’s consolidated for accounting and the group brings in $1 billion or more. If that’s you, watch out as SGEs face larger administration penalties and several extra reporting requirements.

Thin Capitalisation

Thin capitalisation rules generally only apply if your total debt deductions (including associates) are $2 million or more. There are established tests that broadly determine whether debt deductions (for example interest expense) are deductible for tax purposes. Denied deductions can be carried forward and claimed in subsequent income years for a maximum of 15 years.

Hybrid Mismatch Rules

Check if the hybrid mismatch rules apply to you. These can apply when different countries treat the same payments, entities or branches in different ways for tax. The result? You might lose a deduction, have to wait longer to claim a deduction, or find extra income included in your tax return. In short, if a payment gets a double deduction in two countries, or if you get a deduction that’s larger than the taxed income on the other side, these rules matter. Anyone with foreign income should consider these provisions.

Denial of deduction when withholding tax is not paid

A deduction may be deferred or denied if applicable withholding tax obligations are not satisfied (e.g. interest or royalty withholding tax).

CbC reporting entities

You may be required to lodge an Australian local file and group master file with the ATO. These rules broadly apply to public or private companies that are a member of a global group with consolidated revenue of $1 billion or more

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