Whether you’re an individual or a business, we’re all asking the same question – how to minimise our tax bill effectively?
While the short answer is to implement various strategies – also known as tax planning – there’s a lot more to it than just looking at your financials one week before having to submit.
What is tax planning?
Tax planning is an annual account of all the financial aspects of your business, including the timing of purchases and income, planned expenditures and investments. Using this information, we analyse these financials to make them work in your favour to help your business pay the lowest amount possible.
Ideally, the time to plan is around the last quarter of the tax year, which is between April and June but it’s never too early to start.
How to plan your tax strategy
Effective strategies are largely about timing.
While the structure of your business does play a significant role in how much tax you pay, there are other factors that contribute such as:
- Individual Tax Rates
- Asset Protection
- Family/Beneficiaries/Spouse Income Levels
- Income/Profit Levels
However, in line with the law, you can reduce the amount of tax you pay with effective tax planning strategies.
These are the 9 tax planning strategies that COADS facilitates:
1. Bring Forward Regular Business Expenses
By paying your regular expenses – like rent, insurance and licensing fees – up front, you’re eligible for deductions. It’s important to ask your suppliers to invoice you before the end of the tax year to qualify.
However, restrict bringing too many expenses forward as you still need to be able to pay the invoices without running into debt.
2. Delay Invoicing
Every payment that your business receives must pay tax on that amount.
Therefore, if your company can hold off on receiving a payment until after the financial year then it’s advised to do so.
3. Superannuation Contributions
A very popular tax strategy is to utilise the low superannuation tax environment whether you are an individual or a business.
Businesses can pre-pay their June Quarter superannuation for employees in the month of June instead of waiting for the Jul 28th payment deadline, this entitles the business to a pre-30 June tax deduction to claim. One thing to note is that the business must have sufficient cash-flow to support the payment.
Individuals can also contribute to superannuation on top of their 9.5% compulsory super guarantee from their employers, however, be careful not to go over the $25,000 super concessional contributions cap in any year as penalties can be imposed.
4. Instant Asset Write Offs
If your business has to make a big purchase, like a delivery vehicle or new equipment, you can claim it back within that financial year, only once it’s been used and/or installed in the year that you’re claiming for.
The current instant asset write-off applicable to small businesses is $150,000 up from $30,000 (subject to types of assets and purchasing timeline)
Please note that the thresholds, time frames and criteria for assets will be subject to change because of the current Covid-19 environment.
5. Bad Debts
A bad debt means that you’re not likely to recover funds from services.
If you have debts that you’re going to write off, it must be done before the end of the tax year – 30 June – with proof that shows you’re taken action against the debtor to recover the amount.
6. Small Business Capital Gains Tax (CGT) Concessions
These strategies only apply when you are selling your business, but it’s important to keep as part of your strategies because they enable you to minimise your tax.
There are four concessions to consider –
- The Small Business 15 Year Exemption
- 50% Active Asset Exemption
- Retirement Exemption
- Roll-Over Concession
7. Stock/Inventory Control
It’s important to review what your business currently has in stock and whether any of it can be written off. If you find anything in your inventory that cannot be used, it needs to be written off before 30 June.
COADS offers accounting software that helps with stock control and other areas of your business.
8. Capital Gains Taxes
CGT is paid on any asset (that is applicable) such as investment properties or shares that are sold for a gain/profit within any tax year. Government regulations stipulate how much CGT needs to be paid and you only pay tax on the profit/gain received.
If you hold an asset for more than 12 months you will be entitled to a 50% CGT Discount.
The tax to pay is determined by how much you’ve gained and how much you earn annually as an individual in most cases.
If you sell items for a loss, you can offset the amount against your annual gains which can reduce your tax bill.
As CGT can be complex, it’s important to speak to one of our accountants who can assist to strategize and plan ahead.
9. Property Tax Strategies
If you’re a property developer and you’re estimated to earn more than $75,000 a year from rent or sale, then you need to be registered for Goods and Services Tax (GST). Strategies like choosing between applicable or available Goods and Services Tax (GST) methods between the 1/11th sale method, versus the opting for the Margin Scheme. Both can have varying and significant results, so being able to choose the right method is extremely critical.
Other issues to consider or include are identifying between a profit undertaking venture and a capital gains event, which will result in varying tax strategies and methods/calculations to be applicable.
This is a very complex area that requires significant planning, read more about our property tax advisory services.
Covid and Tax
COVID-19 and the global pandemic has had a devastating effect on most businesses. The Australian Government has put relief measures in place to accommodate struggling business owners for the 2020-2021 tax season.
These measures include:
- Cash Flow Boost for Employers
- Job Keeper Program
- Job Seeker Program
- Rent Relief
- Instant Asset Write Offs
- Early Super Withdrawals
It’s important to remember that these measures are only applicable for a limited time.
Failure to plan is planning to fail
If you don’t plan ahead, you won’t qualify for a good tax return. Fact.
COADS Partners is a proactive accounting firm. We thrive on seeing your strategies work and to do so, we communicate well in advance and work with you to execute effective tax plans.
If your business requires effective tax planning strategies, contact COADS to put an effective strategy in place.
Let’s talk today.