How tax planning can save you unnecessary tax
Want to avoid paying unnecessary tax? I thought so.
One of the best recommendations I can give to any business owner is to schedule a tax planning meeting with their accountant every year. This should be held in May / early June to give you time to make any required changes before 30 June.
How it works
Your accountant will review your year-to-date financials and get an idea from you about what the rest of the year will look like. They will then recommend a range of actions for you to take before 30 June that will give you the best tax outcome possible.
As tax planning covers your business and personal tax liability, these activities can range from delaying or bringing forward significant purchases, through to spreading the tax liability between yourself and your company.
Your accountant will put the ‘planning’ into tax planning by also looking ahead to next financial year, and giving you actions and targets that will set you up beautifully for next year’s tax time.
As a result of the tax planning process, you will get total clarity about your tax position well in advance of getting your tax bill – not only will this help you to plan (and save) accordingly, but you’ll also avoid any nasty tax surprises.
Common tax planning activities
- Review owner / director drawings, loans, wages and expenses. Your accountant may recommend changing the type of director payments to ensure you are not disadvantaged tax-wise. For example, changing directors drawings to wages (if you are under or over certain thresholds of either) can have a significant impact on your tax liability.
- Review Division 7a loans. Further to point 1, if company directors take money out of the business which is not recorded as wages or director drawings, it is recorded as a loan. Directors must pay interest on these loans (at the official ATO interest rate), so they can cause a tax nightmare – one that can sometimes be avoided with planning.
- Make extra salary sacrifice payments to super. If you are under the relevant contribution cap, it may be beneficial to make additional salary sacrifice payments to super (meaning you have less taxable income). It is important to note that your super fund must physically receive and process any payments into your personal superannuation account before 30 June for them to be tax-deductible in that financial year.
- Bring forward / push back investment in equipment. There may be times when it is better to pay for equipment in this financial year, or push it back until next year. Your accountant will make recommendations based on your overall financial situation.
The key to effective tax planning is accurate and timely data – this is where your BAS agent or bookkeeper is worth their weight in gold. Keeping your financial information up to date will enable your accountant to provide the right advice; it will also give you greater clarity so you can make the best decisions for your business (and your family).