As we speed towards another end-of-financial year, it’s a good time to think about how you can improve your tax outcomes for next year.
Tax minimisation is often thought of as something devious and underhanded by some, but there are many perfectly legitimate ways to reduce tax. Whilst it may not seem like it sometimes, ultimately governments want (and need!) businesses to succeed, so they create mechanisms where tax concessions exist.
Here are 10 suggestions to take into consideration when tax planning:
- Owning a business and working within this business, you are potentially entitled to two (2) types of income – profit distributions and wages. Business owners are entitled to the profit distributions, although business employees receive wages. Both incomes have different tax consequences for the recipients.
The question is, what if you are genuinely BOTH – an owner AND an employee? Working on these can become a complex issue – considering contributing factors such as franking credits and superannuation, but we can assist you with the best outcome for your situation. - The opportunity for “instant write-offs” for stand alone assets (up to the value of $20,000) is still available for purchases before 30 June 2024.
- If you are operating a Discretionary Trust, you could consider distributing a small part of the income to your children, grandchildren or to other individuals in your family who are currently not earning an income. The amount which can be distributed for individuals under the age of 18 is limited to $416 – although not a large amount – it may be a great start to their investment fund to assist them later in life.
- If you do not currently have a Trust – is it time to consider one? Discuss your options with our team, we may be able to seek a better structure for your business. Trusts generally are best for those with families, especially where there are significant differences in income between family members. One of the more unknown advantages of a family trust is the 50% Capital Gains Tax discount – a perk that company’s miss out on!
- Do you have multiple entities which have carried forward losses from prior years? These losses can offset this year’s taxable income in some cases. Occasionally it is appropriate to charge service fees between these related entities to take up this opportunity.
- Do you know when your term deposits/investments mature? For individuals or small businesses which pay tax on a cash-basis, it would in your best interest to have these mature in July, not June. To mature in July, it ensures any tax payable on the interest is deferred by almost a year.
- Does your accountant give you the opportunity to pay your fees over a 12-month period? These fees along with stock purchases or staff bonuses are best to prepay to ensure you receive upfront deductions.
- Do you review your aging debtors regularly? If your debtors are constantly not paying on time or any you are 100% confident won’t be able to pay, it may just be time to write off these debts and claim as a tax deduction.
- You may not have children or extended family and may consider donating part of your income to your favourite charity. You can review the tax deductibility of charities via the Australian Business Register (https://abr.business.gov.au/Tools/DgrListing).
- Finally, do you have enough superannuation for your retirement? The tax rates for superannuation funds are lower than corporate tax rates, therefore an opportunity to contribute your extra money to superannuation. This may be a viable option to ensure your retirement is more comfortable – be aware though there are limits on how much can be paid in any given year and over a lifetime.
Aside from the above standard suggestions to take into consideration, if your business is in growth via product innovation – there is potentially 1 more incentive being missed by you. There is a tax concession available for types of research and development expenses, although the rules regarding what is eligible are quite specific. Whilst spending money on research and development is not an automatic large tax concession, it is potentially worth looking into.
Ultimately, tax planning is individual and not all suggestions are best for you, your family, or your business. Various businesses are required to meeting mandatory liquidity requirements, either for their bank or regulators such as QBCC, and these obligations take precedence.
We all live very different lifestyles which necessitate different cashflow needs. There is no point in keeping money held in a company to save on tax, if at the same time you need the money to live!
Whilst determining what is best for you, you may also need to consult with those you may wish to distribute income to. Adding to family members’ income can impact their eligibility for government concessions, such as pensions or childcare rebates.
There is no one size fits all option when it comes to tax planning, knowing our team are here to assist and advise you of your options which are available is the next best thing!
For a confidential discussion with our advisers, please contact our team to schedule a consultation.