It is tax planning time! In most instances, tax planning happens in the final quarter of the financial year between April and June. 30 June is fast approaching, so now is a great time to plan and forecast for the end of and new financial years to ensure you’re in the best possible tax position.
What is tax planning?
Tax planning is the strategic organisation of your financial situation to minimise the amount of tax you may be liable to pay. Tax planning allows you to estimate the amount of income tax payable for the current financial year so you can make strategic decisions before the end of the financial year.
For most businesses and individuals, income tax is one of their largest expenses, so careful planning and budgeting is required. Having a strong tax plan, an accountant in your corner and working smarter with your tax strategies can almost always save you some cash.
The ATO sets out strict guidelines and frameworks to work within, so illegitimate practices will lead to penalties, often involving the need to pay back tax with interest and fines. It’s just not worth it.
Top 6 Tax Planning strategies
- Can I spend to save?
Before you go and spend your business’ money, there are a number of things to consider when purchasing items for your business as a way to access tax-deductions and write-offs.
When spending company money, you’ll generally pay $1 to save 32 cents (based on the current small business company tax rate and after GST credit). So, it really depends on what it is you want to buy and the benefit it will have on the business.
If you have the funds ready to go and require a new piece of equipment for your business like a computer or oven, then purchasing this before 30 June will most likely help. Remember, new equipment for a business needs to be installed and ready to use by 30 June to be written off as a tax deduction.
- Instant asset write-off
There is no limit to how much you can write-off when it comes to new equipment for small businesses meaning you can immediately depreciate the full cost of the asset.
As mentioned earlier, if you need new equipment for your business, then this is a great way to save some cash by purchasing the item before the end of the financial year. The instant asset write-off scheme has been extended until 30 June 2023, so act quick to take advantage this year. Speak with your Arabon accountant to ensure you’re making a wise purchase for your situation.
- Pre-paying expenses
Do you have some additional cash flow this financial year? Perhaps you could investigate pre-paying some expenses for the year ahead so you can claim the tax in the current tax year? Some examples of this are office/warehouse rent, subscriptions, insurance or accounting fees. If you pay these fees by 30 June, you can deduct up to 12 months of prepaid expenses from the current tax year.
- Superannuation Contributions
If you make additional or larger contributions to your personal superannuation, you can claim the additional expense and save yourself some tax. The payments do need to be received by the super fund prior to 30 June for the contribution to be deductible in the current tax year.
- Business Restructuring
Different entity structures pay different tax rates. If you’ve experienced strong growth as a partnership or sole trader, then it may be beneficial to your business to transition to a company structure for the additional tax benefits. If you’d like to discuss this option, talk to your Arabon accountant to work out what structure may be right for your business.
- Book a tax-planning meeting with your accountant
Booking in an annual tax planning meeting is a great way to ensure you have a tailored and strategic way forward in your personal and business finances. An annual planning meeting can improve cash flow, improve goal setting and tracking, bring more control over your finances and improve decision making.
Each business’ goals and objectives are individual and unique. Therefore it is important that the advice we give is individual and unique to each business. Contact your Arabon accountant today to book in your tax planning meeting.
