Understanding and Planning
While you are focused on the day to day running of your business, it can be difficult to find time to plan for the future. This can lead to unexpected tax liabilities arising after the financial year and difficulties with managing business and personal cash flow.
Tax Planning is about looking forward, understanding your business financial performance, and implementing effective, positive strategies to minimise income tax. By reviewing the financial performance of your business, we can make accurate estimates on the taxable profit for the year, what the resulting tax implications would be, and how this will affect your cash flow in the upcoming year.
Take Advantage of Budget Changes
The second Tuesday in May is not only an exciting night for economists and accountants but an opportunity for business owners to benefit before 30 June. Changes in available deductions and tax offsets can take affect as of budget night, providing you with an opportunity to benefit by taking action prior to 30 June. The key change for business this year is the increase to the immediate deduction available for assets purchased up to $20,000.
We have provided further information on the 2015 Federal Budget in our accompanying articles:
2015-16 Federal Budget – Families
The ‘Small Business’ Package of Budget Measures
Please contact your Accountant should you wish to discuss how these changes affect you.
Timing of Deductions
To simplify taxation for small business entities, the tax office allows prepayment of expenses for up to twelve months. This means in financial years where financial performance has improved and cash is in the bank, small businesses can bring forward deductions by prepaying expenses for the upcoming financial year.
Examples of common types of expenditure that businesses can prepay include:
– Interest on loans
– Rent
– Office running costs, such as electricity, internet, and telephone expenses.
By undertaking a review before 30 June, we can assist in identifying the benefit of prepaying expenses and its impact on cash flow to business.
Tax Effective Trustee Resolutions
It is important for a trustee’s decision on how the trust income is distributed to beneficiaries each year be documented prior to 30 June. Without this documentation, the ATO can direct the trustee to pay income tax on trust income at the highest marginal individual tax rate.
While duplicating last year’s trust resolution is an option, changes in trust activities and beneficiary circumstances may mean the distributions are not tax effective. A common example of this is capital gains as they are once-off and often significant taxable events. Through tax planning, a review is undertaken to estimate trust income and determine tax effective distributions to eligible beneficiaries.
Superannuation Contributions
Contributing to your superannuation is still an important part of a planning strategy in minimising tax. The 15% tax rate on contributions to a super fund is only beaten by an individual’s nil% tax rates on the first $18,200 (2015 threshold) of taxable income.
It is important to ensure superannuation contributions paid in a financial year do not exceed the relevant cap; otherwise, further tax implications and penalties may apply. The 2015 concessional contributions cap is $30,000 for taxpayers under 50 at 30 June 2014 or $35,000 for 50+.
Whether you contribute to superannuation as an individual or through a company or trust, it is important to ensure contributions are received by your fund before 30 June.
