Tax Planning
Tax planning is something that needs we need to think about every day of the year. Gone are the days when it would a mad rush at the end of June to gain all the tax benefits available just before the end of the financial year.
Now, it takes more time to think through all of the aspects involved, what is needed and the consequences of actions taken.
The Tax Office has also significantly increased its visibility over business activity and affairs. Single Touch Payroll and SuperStream are just two examples.
The major areas of tax planning now involve the business structure which is being used and to ensure that all tax matters are up to date and seriously considered.
There are a number of key principles which are used as the foundation of tax planning. These form the basis of our tax planning meetings each year, and need to be covered in detailed discussions.
Tax Planning Principles:
Defer Income. If you have the opportunity to defer income, without it having a significant impact on your working capital position, make the most of this.
Prepay some business expenses. There might be some that can be paid before 30th June, which gives you a tax deduction for the expenses this year. Here are some to consider:
Employee Superannuation. Employee superannuation on wages paid between April and June is due to be paid in July. However, you can pay it early and get the deduction in the year it’s paid.
Local Marketing. Money spent on advertising and marketing is vital to building your business and is tax deductible as well. So, if you’re planning on some local marketing in the next few months, pay for it now and get the tax deduction this year.
Repairs and maintenance. Are there any repairs or maintenance jobs that need to be done? Get them organised before 30th June, so you get the tax deduction in the year you pay the bill.
Office Supplies. These are every-day expenses most businesses incur. You’ll end up using the supplies, so if you have the cash available, buy them and get the tax deduction.
Rent. Depending on your cashflow position, you can claim a tax deduction for rent paid in advance. Consider prepaying rent for a month or two. You might need to confirm with your landlord that they are happy to receive rent in advance.
Subscriptions or Membership Fees. If you have any membership fees coming up you can pay them before 30th June, and get the tax deduction in the year they’re paid.
Donations - Give to a good cause. Do you have a favourite charity? If so, you can make a donation. To gain a tax deduction, you’ll need to get a receipt and make sure the charity is a Deductible Gift Recipient (DGR). Also, be sure to pay it before 30th June.
Pay yourself a bonus. If it looks like you’re heading for a healthy profit, pay yourself a bonus. This gives you the flexibility to use the money for any personal purpose, from stashing in your savings account to splurging on a holiday. You need to look at the difference in tax rates, as your tax rate might be higher than the company tax rate, so take care with this one.
Increase your Superannuation contribution. The Super contribution limit is $25,000 from all sources. If you exceed this, the amount in excess of $25,000 is not deductible. If you can, make sure you contribute up to the limit. That’s because if you miss it this year, you’re not able to catch it up in the following years.
These are some excellent tax planning tips to get you started. However, be extremely careful in this area, and talk to us before you do anything too significant.
Peter
