Businesses and individuals should be reviewing their financial affairs well before 30 June to ensure the best possible tax outcome for the 2026 financial year.
Important warning
Tax planning can improve cash flow and reduce tax—but if done poorly, it can damage the long‑term value of your business.
You can read more here:
What Can Tax Planning Do to the Value of Your Business?
https://mcnamaraandco.au/blog/tax-planning-v-value-planning
Nine Key Areas to Consider in Tax Planning
Effective tax planning involves reviewing multiple aspects of your financial position. The following nine areas are the foundation of most strategies:
- Reducing assessable income
- Increasing deductions or tax offsets
- Diverting income (where appropriate and compliant)
- Selecting the most appropriate tax structure
- Deferring capital gains events
- Moving money into lower‑tax environments (e.g. superannuation)
- Reviewing your fixed asset register
- Reviewing your stock ledger
- Reviewing your debtors ledger for bad debts
Reducing or Deferring Assessable Income
Reducing or deferring assessable income is one of the most widely used and effective tax‑planning strategies.
Key areas to review include:
1. Cash vs Accruals Accounting
Determine whether your business should be assessed on a cash or accruals basis, as this can significantly affect the timing of income recognition.
2. Timing of Invoicing
If you report on an accruals basis and cash flow allows, consider deferring invoices until after 30 June so income is recognised in the following financial year.
3. Capital Gains Timing
If you are planning to sell an asset that will generate a capital gain, deferring the sale until after 30 June will push the gain into the next financial year.
4. Trading Stock Revaluation
Review whether trading stock can be revalued in accordance with tax law to reduce assessable income.
5. Trade Debtors
Uncollectable debts may have already been treated as income. Genuinely unrecoverable amounts should be written off before year end.
6. When Is Income Actually Derived?
Under principles such as the Arthur Murray case, certain receipts may not be taxable until services are actually performed. Service contracts should be reviewed carefully.
7. Deferring Interest Income
Where commercially possible, defer the receipt of interest income into the next financial year.
8. Deferring Dividend Income
Similarly, delaying dividend receipts can shift income into a later year where appropriate.
Increasing Allowable Business Deductions
Increasing legitimate deductions is another effective way to reduce taxable income.
Key areas include:
1. Bad Debts
Relevant for accrual‑based businesses. Review debtor balances and write off debts that are genuinely unrecoverable. This may also reduce GST previously remitted.
2. Scrapping Fixed Assets
Review your fixed asset register for assets that:
- Have no remaining value
- Are no longer used
- No longer exist
Small business depreciation rules may allow immediate write‑offs.
3. Stock Valuation
Stock may be valued at lower replacement value, not just cost. Obsolete or damaged stock can be written off.
4. Superannuation
Superannuation is only deductible when actually paid. To claim a deduction, employee super must be received by the fund before 30 June.
5. Accrued Director Fees
Under Taxation Ruling IT 2534, director fees can be accrued and deducted in the current year, with payment made in the following year. Super is only required when payment occurs.
6. Black Hole Expenditure
Section 40‑880 of the ITAA 1997 allows a five‑year deduction for certain business expenses that are otherwise non‑deductible, including:
- Business establishment costs
- Restructuring costs
- Capital raising expenses
- Business cessation costs
Diverting Income (Where Appropriate)
Diverting income is another commonly used tax‑planning strategy.
A Discretionary (Family) Trust can be an effective structure for directing taxable income to beneficiaries in lower tax brackets.
Features include:
- Flexible distributions
- No fixed entitlement to income
- Trustee discretion over allocations
⚠️ Critical compliance note:
Trustees must make beneficiaries presently entitled to trust income via a valid distribution resolution by 30 June.
ATO guidance:
https://www.ato.gov.au/General/Trusts/In-detail/Trust-tax-time-toolkit/Resolutions-checklist/?page=2#Before_30_June
Managing Capital Gains Events
The timing of a capital gains event can defer tax for a substantial period and in some cases reduce the amount of tax payable.
Before selling an asset, consider:
- Length of ownership
- Small business CGT concessions, including:
- 15‑year exemption
- 50% active asset reduction
- Retirement exemption
- Small business rollover
- CGT discount eligibility
Holding an asset for more than 12 months may allow the 50% CGT discount, meaning only half the gain is taxable.
Deferring a sale into July can delay tax payment by up to an additional year, depending on lodgement timings.
Reviewing Key Ledgers
Three critical ledgers directly affect taxable income:
Fixed Asset Register
Write off obsolete or non‑existent assets.
Stock Ledger
Write down damaged or obsolete stock to reduce closing stock and profit.
Debtors Ledger
Identify amounts unlikely to be collected. Writing these off reduces debtors and taxable income.
Final Reminder
Tax planning is not simply about reducing tax this year — it is about strengthening your financial position without damaging long‑term value.
Each strategy should be commercially justified and aligned with your broader business goals.
If you would like a tailored tax‑planning review or structure assessment, our team is available to assist.
McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandco.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.au
Please refer to disclaimer at the bottom of the page.
