The end of the financial year is very close. Elite Tax Success, we have had another busy tax planning season with our clients. Each year we work closely with our clients to achieve a number of important outcomes. As Accountants and Business Advisors, our advice is only valuable if it is timely, and hence why we focus heavily on tax planning. Timely tax planning advice has many benefits including:
- Tax Minimisation
- Cashflow planning
- Identify opportunities for future years
- Expense reduction
- Review of trading performance
To get the full benefit from tax planning you should be working with your Accountant early enough before the end of the financial year to ensure that the right decisions are made, and all opportunities are taken advantage of. In addition, your bookkeeping should be up to date. You can’t be 6 months behind with your numbers and expect your Accountant to be able to give you guidance.
Before any tax planning strategies can be put in place, it is important to know where the starting point is – i.e. If we did nothing, what would the tax situation look like? Whilst good tax planning should commence each year in May, there may still be opportunities for those of you that may have found yourself on the back foot and without the right guidance.
#1. Deferring Income
If you are using the accruals method for accounting, you have the opportunity to not raise June invoices until 1 July. This will delay paying tax on that income until the next financial year. Be mindful of your cash flow though as doing this may impact payment terms.
#2. Bring Forward Expenses
Firstly, we never advise buying something just for the sake of tax minimization if the purchase is unnecessary. Don’t spend $1,000 just to get $470 back. What you can do though is look at any future expenses such as repairs or staff training and pay them before 30 June to bring forward the tax deduction and minimize this year’s tax.
The Prepayment rules allow you to alter the timing of deductions for certain prepaid expenses. A small business can use “the 12-month rule” for things like rent, bank interest, marketing consulting fees, or accounting fees. If the eligible service period (the period during which the work is to be done under the agreement in return for the expenditure) is less than 12 months and that period ends in the next financial year, you can prepay those expenses in this financial year and get a deduction for that expense.
#4. Super Contributions
Superannuation contributions are taxed within a superannuation fund at a rate of 15%. This is compared to personal income tax levied at your marginal income tax rates and the company tax base rate of 26%. There is a noteworthy taxation advantage obtained in contributing additional funds to superannuation. It is noted however that once superannuation is contributed, it is generally unable to be accessed until retirement or retirement age.
#5. Payment of Superannuation Guarantee (SG)
According to Sherrie Ashley, the co-founder of PeopleFastFind, “Superannuation payments for employees are specifically tax-deductible when the payment is made.” Generally, however, payments are not required to be made until 28 days following the end of each quarter. Bringing forward your superannuation payment by 28 days for the June quarter, that is making the payment before 30 June, would bring forward your tax deduction by a year.