Tax planning – why do we recommend it?
Tax planning is a great opportunity to look at your business trading for the year to date, assess what goals you have for next financial year, and plan for what tax bill may arise at year end so there are no surprises. Tax planning is usually done before end of financial year, to allow for actions to be done to minimise tax, or maximise profit.
As pro active accountants and business advisers, tax planning is one of the many things we do to help clients manage their business.
What is involved?
A review of the year to date financial reports, including Profit & Loss, Balance Sheet and Cashflow in line with business goals. We also estimate the projected tax position of the company, and help manage pre year end tasks such as trust distribution minutes and dividend declarations. We may also raise any issues with you that need to be addressed before year end.
How is this done?
Prior to meeting with you, we need to ensure that the accounts are reconciled and up to date for at least 9 months of the financial year. A review of the accounts by our team is done, and any issues documented. We then set a meeting with you to go through the financial position, reports, estimated tax projection, business goals and actionable items before end of financial year.
Questions to ask yourself?
If you are thinking of tax planning, but are still unsure whether you need it or not, here are some questions to consider:
- Has your business made a lot of money this year and you’re worried about a big tax bill?
- How do you know if your on track or if your business is performing well in comparison to others?
- Do you have plans for purchasing large equipment or assets in the near future?
- Have you done enough to minimise your tax position before year end?
- Do you have private expenses in your profit & loss and unsure of the tax treatment of these?
- Have you provided fringe benefits (eg car) that may have a tax impact at year end.
- Is your business cashflow running smoothly, and is there any opportunity to make this better?
- Is your revenue in line with expectations? How do you measure this regularly?
- Do you have expansion plans, but are unsure of how to finance this?
Tax planning tips for 2022:
- Temporary Full Expensing & Instant Asset Write-off (source ATO)
Eligible businesses with an aggregated turnover of less than $5 billion can deduct the business portion of the cost of eligible new depreciating assets. These assets must be first held and first used, or installed ready for use for a taxable purpose, between 7.30pm (AEDT) on 6 October 2020 until 30 June 2023.For small and medium sized businesses (aggregated turnover of less than $50 million), temporary full expensing also applies to the business portion of eligible second-hand depreciating assets.Under temporary full expensing, small businesses also deduct the balance of their small business pool at the end of the income years ending between 6 October 2020 and 30 June 2023.From 12 March 2020, the instant asset write-off:
- Company tax rate changes – the company tax rate for FY2022 for a base rate entity is 25%.
- Paying employee superannuation. If you pay your June quarter liability before 30 June, then you are allowed the deduction for that financial year.
- Maximising superannuation thresholds.
- Defer income. If your business allows, consider deferring some invoicing until July.
- If cashflow allows, consider paying things in advance up to 12 months, including rent, subscriptions, insurance.
- Bring forward expenses. Consider bringing forward some July expenses one month forward. If you have a credit card with an interest free period, you can purchase items in June and pay for them in July.
- Write-off bad debts. Go through your aged receivables and consider writing off any old debts that are unrecoverable. This will ensure that these invoices will not be added to your taxable income. Also consider debt collection for these debts, as cash in your business is better than writing it off.
- Review your directors loan transactions during the year and assess your compliance with Division 7A.
- Ensure any employee contributions for private expenses are reimbursed to the company, declared as wages, or declared as dividends. Eg Private usage of car.
- If any dividends are paid, ensure that minutes are recorded and dividend statements are prepared.
- Ensure that trust distribution minutes are recorded before 30 June.
- Ensure and FBT return is prepared & lodged for any fringe benefits you may have (eg car, entertainment, parking, company paid personal transactions).
- Stocktake – if you hold inventory, please complete a stocktake at 30 June.
