Tax Planning - Part 3
The first two instalments of this series were all about setting an overview of what tax planning is and how to actually do it. In part two we looked at more detail of the process of preparing a businesses profit or loss and balance sheet to then implement tax planning strategies. This week, we are continuing on along that path and looking at some further practical strategies that can be implemented prior to year end. It is business focused, and next week in our final instalment will be purely in relation to individual taxpayers.
The end of financial year is a great time to do some spring cleaning. Last article we mentioned writing off any old debtor amounts unlikely to be received. This will reduce your profit and mean less tax, however it is also a good time to chase outstanding payments. Even though money being received may cause profits to go up or at least stay the same depending upon your accounting method, it is always better in our view to have cash in the bank rather than writing off debts.
Scraping any old assets is something that is often forgotten about, particularly where your accountant maintains your asset register. We have taken on clients previously and when asked to run through the asset register, were shocked at how old some of the assets still listed on there were. They will continue to depreciate over their useful life unless you write them off earlier, and therefore bring forward that deductible expense.
Now that the threshold for small businesses have increased from a $2 million threshold, up to $10 million, this means that many more businesses now have access to using small business pools. Pooling of assets replaces the alternate method of depreciating each individual asset over its useful life, with a simple flat rate of 15% for assets acquired during the year. Subsequent years are depreciated using the rate of 30%.
Stocktake! If anyone still actually pays any attention to TV advertising anymore, you will notice a lot of businesses are promoting stocktake sales. Having been involved in many stocktakes over the years, we certainly understand the practical reasons for reducing stock before doing a stocktake, although am quite sure these promoted sales usually have no alignment in timing to the actual stocktake being done! Anyway, point being is that a stocktake is a useful tool to determine if you have any lost or damaged stock during the year that can be written off before year end. There are ideal procedures which should be followed, so if your business has never done a stocktake before, please contact us to ensure it is done using best practice procedures.
Maintenance is always blamed in the media whenever there is a mechanical fault causing an aeroplane to be grounded. Big businesses get in big trouble for stretching out maintenance and repairs. This is also a big area of risk in transportation businesses, and taking the time to ensure vehicle servicing is done now before year end not only reducing the risk of downtime in the future, it is also a deductible expense to your business. The same can be said for offices and warehouses, don’t let a blinking light or damaged area go unrepaired and end up resulting in an employee complaint. Get in and fix it now.
Superannuation is deductible when paid, not accrued. Also with SuperStream the ATO has greater insight into your superannuation payments with the penalty for missing the quarterly deadlines significant. Consider paying some or all of the superannuation for the April-June quarter before 30 June in order to obtain the tax deduction for it this financial year.
Are you in the right structure? If not this is a great time to consider using the small business concessions allowing you to rollover for example, a sole trader into a company or trust. There are many reasons to consider doing this, but for the purpose of the scope of this article, the tax savings are the primary focus. To determine if this is right for you, it is best to discuss with us your personal circumstances so we are able to provide specific advice.
These are a few of the areas we typically look at and discuss with our clients when performing tax planning with them. Each area feels like it is a little thread, and the more you pull on it, the more it unravels. Tax can be a complex area and what may seem simple can have a variety of unintended consequences. That is why we are here though, to help you navigate your business through the maze of tax compliance in Australia.
Also as mentioned earlier, next week will be focused on individual taxpayers, so if there are any specific areas please do not hesitate to contact us with any specific areas you would like to be covered.