Tax planning 2024 for Mining & Resources business owners and individuals

Individuals and businesses in mining and resources industries have much to consider in the lead up to 30 June. While tax planning is important for tax minimisation it’s also an opportunity to consider bigger picture circumstances and how decisions made now can best serve future goals.

In this article, I’ve made a list of the tax matters affecting individuals and business owners and why it’s imperative to plan and implement actions well in advance of the end of financial year.

*Before I launch into describing 2023/24 tax planning matters, may I add a giant asterisk to the contents of this article as circumstances may change depending on Federal Budget announcements. Treasurer Jim Chalmers is due to hand down the Federal Budget on 14 May 2024 and there are often additional tax planning opportunities that arise as a result.

For individuals
Executive Share Schemes:
Tax complexity is inherent when managing executive share schemes. Participants must be diligent and where possible attend to taxing events promptly. Ordinarily ESS participants will be aware of when a taxing event may have occurred and best practice is to make sure there is a plan in place for managing any income tax that may occur as a result.

Defer income:
From 1 July 2024, most employees will enjoy a tax reduction as a result of the Stage 3 tax cuts – in particular high-income earners in mining and resources industries. While you will need to wait until after June 30, 2024 to see more cash in your take-home pay, the key is to use the coming tax laws to reduce your tax obligation this year. If it’s possible to defer income until after June 30, it will mean the new reduced marginal tax rate will apply to that income from 1 July, resulting in a larger amount of after-tax earnings.

Bring forward expenses:
Similarly, tax deductible expenses such as annual subscriptions and interest on loans for investment properties that can be paid before 30 June will help reduce this financial year’s tax bill and potentially allow taxpayers to obtain a greater benefit from the tax cuts starting in the 2025 income year.

Personal superannuation contributions:
For individuals with a super balance under $500K, there is a catch-up contribution provision. This allows the under-contributed cap amount from prior years to be caught up, without penalty, and added to this year’s full contribution cap amount. However, there are some key considerations.

The first is that catch-up provisions apply to a rolling five-year period. This means to take advantage of any under-contributed amount for the 2020 tax year, you must use it this financial year as this opportunity will expire on 1 July.

The second is to be aware of the annual contribution cap amount. In 2020 and 2021 it was $25,000 pa. That would mean, if you contributed $23,000 in each of those years, you would be entitled to a $4,000 catch-up being a $2,000 under-contribution for each of those years.

In 2022 the annual cap increased to $27,500 and any under-contribution amount during those two years could also be added to this year’s total cap amount.

How much you contribute or catch-up your super will depend on whether you have surplus cash available and your overall tax circumstances.

For instance, you may have already reduced your tax sufficiently for this financial year, and it may be more advantageous to hold over eligible catch-up contributions and reduce taxable income in future years.

There is also Division 293 tax to consider, which applies an additional 15% tax to superannuation contributions when a taxpayer’s adjusted taxable income plus concessional contributions made by them or on their behalf exceeds $250,000.

Importantly, superannuation contributions for individuals (and businesses) will only count as a deduction in this financial year when they are received by the super fund (i.e. they have not just exited your bank account) before 30 June. To ensure contributions are processed in time, may I suggest they are made well in advance. Most public offer super funds publicise their 30 June cut off dates on their websites.

Motor vehicles:
If you use your private motor vehicle (owned or leased) for work you have two options for claiming deductions.

The first is to keep a logbook which can be a physical book or an App to keep detailed records of odometer readings, dates and purpose for all your business and private vehicle use over a continuous 12-week period. The resultant business use percentage can then be applied to most motor vehicle expenses incurred, such as fuel, insurance, repairs, interest and depreciation. A valid logbook is able to be used for five years, unless there is a material change in the business usage of the vehicle.

The second is the cents per kilometre method which is often preferred by those who use their vehicle less regularly for work purposes. Calculated at 85c per kilometre (increased from 78c in 2022/23) it can be used for claims up to 5,000km or up to $4,250 annually. The ATO generally requires some reasonable level of substantiation to support the claim, but these requirements are not as onerous as the logbook method.

Home office expenses:
Again two methods apply. The first is claiming actual expenses that will involve keeping detailed records of home office expenses. It may also include apportioning home space to your work activities along with any dual business/personal use of the home office space.

The other is a cents per hour method which also requires keeping detailed records such as work rosters or spreadsheets that outline start and finish times and descriptions of the work purpose. The claim amount is calculated by the multiplying the actual hours worked from home during the financial year by 67c per hour.

Investment properties:
As mentioned earlier, interest on investment loans is tax deductible and so too is building depreciation.

For owners of investment properties, a tax effective way of obtaining additional deductions is to claim against the capital works costs attributable to the construction of the building. As this calculation is based on original construction costs, a quantity surveyor is usually engaged to determine these amounts and provide a depreciation schedule. Unfortunately building depreciation generally applies on a 40 year straight-line basis from the date of construction. As such, we practically suggest that obtaining this type of report is usually only viable if the building is less than 20 years old or if there have been substantial renovations or improvements to the building in the prior 20 years.

For businesses
Bad debts:
For businesses paying tax on an accruals basis, all bad debts should be reviewed and written off (by way of a written record) before 30 June. This is because bad debts will only become tax deductible once a written record is applied to them.

Income in advance:
For monies received in advance of a job commencing or jobs that won’t fully complete this financial year, it may be appropriate to defer some of that income to the financial year in which they will complete. This can be particularly beneficial for avoiding an unnecessary tax expense if the job is cancelled and the monies needs to be returned.

Pay staff superannuation:
While your April-June superannuation obligation doesn’t need to be paid until July, paying staff superannuation before 30 June will bring the tax deduction forward to reduce tax payable this financial year.

Instant asset write-off:
Mining and resources businesses are typically asset intense and for businesses with $10M or less turnover they can immediately deduct the full cost of each eligible asset costing less than $20,000. However, rules dictate the asset must be installed and ready for use between 1 July 2023 and 30 June 2024.

Division 7A Loans to Shareholders:
Loan obligations for company shareholders need to be reviewed and actioned well before June 30 to avoid tax penalties. These will include ensuring shareholder loan repayments are made, dividends are declared and, ideally, loans are proportionately equalised across owners (this includes loans into and out of the company). The latter generally requires careful consideration as business founders may have disproportionate loan arrangements in comparison to other shareholders.

Trust distribution minutes:
For discretionary trusts, once tax planning and proposed distributions of profits have been decided, minutes outlining the trust distributions must be completed in writing and approved by the trustee(s).

Plan early:
While tax planning is important for tax minimisation strategies, it more often serves as an effective conversation starter that can brings a variety of issues to light.

For individuals this can include discussions about tax in context of retirement and estate planning. For businesses, planning discussions often include succession, business sale or acquisition opportunities, business consolidation and expansion and whether current business structures are suitable for what’s coming next.

There is a lot to consider, which is why tax planning well in advance of 30 June is the key for implementing actions or changes as necessary for achieving required outcomes.

For more information and to arrange a 20-minute discussion with Craig Barry, please contact Resources Unearthed on +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au.