With the tax year almost three quarters complete, it is time
to start thinking of tax planning. If profits are up, or even down, important
considerations need to be made to manage any resulting tax consequences, with
either permanent measures or timing measures to move tax payable from one year
If your business has made profits or even if you personally have significant income from investments, then appropriate and effective tax planning can eliminate or defer tax from one year to the next.Not all tax planning alternatives or opportunities apply to all taxpayers, or to every year, so it is important to consider all options and take advice to suit your particular situation for this year.
Reduce your Tax !!
Some measures (permanent) that will reduce your overall tax payable position are;
- Making additional deductible super contributions
- Purchasing capital equipment or vehicles
- Write off bad debts in the books (you can still pursue payment even if written off for tax purposes)
- If claiming motor vehicle expenses, having a valid log book or redoing a log book to obtain a higher percentage will increase valid deductions
For all small business entities, the $20,000 capital acquisition incentive is still in place until 30 June 2017, so offers additional incentives for tools and equipment below that level.
Defer your tax !!
A more common tax planning measure is to change the tax period that income and expenses fall in, mainly with a view to deferring tax to the following tax year (from 2017 into 2018). This is accomplished by deferring income or bringing forward expenses, but sometimes there are logical reasons to do the opposite - to bring net income forward.Common tax deferral methods are;
- Defer sales or bankings (cash basis) from late June to early June
- Bring forward July expenses by paying in late June
- Make prepayment of expenses for up to 12 months (small business entities)
- Pay employee Super (SGC) before 30 June rather than the 28 July deadline
- Revalue stock/inventory at market value to take account of obsolete or damaged stock
Remember that if any deferral method affects your cash flow in a significant way, you need to take that into account in you cash flow planning (i.e if you defer sales from 30/6 to 1/7 and customers pay you from end of month, then 1 day may defer payment by 30 days)
Other Business Planning
There are other tax or business planning issues to consider which are more long term, but include;
- considering restructuring to a Company or Trust for business purposes may be appropriate for both tax and asset protection purposes,
- purchasing an investment property may create wealth and have tax benefits,
- prepare Trust minutes for compliance purposes/requirements
- prepare estate planning documents (wills and power of attorney documents)
- Convert to online accounting programs for better access to financial information and time saving
As well as annual tax planning, you can do BAS (Business Activity Planning) to suit your BAS cycle (Quarterly or Monthly) and defer GST Payments. Similar to tax planning, if you report on a cash basis, making payments for overheads or to suppliers on 31 March rather than 1 April will affect your cash flow by 1 day, but it will mean that you can claim the GST credits 91 days earlier in the March BAS rather than the June BAS (for quarterly payers). Similarly, bankings on 1 April rather than 31 March has the same affect by deferring GST collected from the March BAS to the June BAS.