As a small business owner myself, I can speak from experience: tax planning is not as high on the priority list as I’d like. While you battle to keep your business running, and focus on the day to day operations on your business, it’s easy to overlook the importance of planning strategically for the end of the financial year. That’s where we can help!

There are a number of specific things you can do to not only understand what your likely tax liabilities will be for the year, but also actively minimise your tax bill.

Undertaking some strategic tax planning will not only minimise your tax bill, but perhaps more importantly it will bring you peace of mind. Knowing your likely tax bill is certainly better than being ‘surprised’ with a tax bill a month away from its due date – and then also being hit with ongoing income tax instalments! Good tax planning can also assist with keeping money in your business to be used on the day to day operations, as opposed to being paid to the ATO unnecessarily.

The first step to effective tax planning is to use actual current year data to forecast the entire year’s likely profit position. Then, we employ specific strategies to minimise your tax. Following are some basic tax planning strategies we consider to keep your tax down, and cash in your business:

1. Pre-pay expenses

If you qualify as a small business entity (turnover <$2M), then paying some of your business expenses in advance will bring forward tax deductions to the current year, subsequently reducing the amount of tax you pay. Examples of common items suitable for pre-paying are interest on business or investment loans, rent, leases, stationery and insurance. However it is important to consider the impact the prepayment of expenses will have on your cash flow position! This will usually determine how much your can prepay.

2. Putting money into your Super

Before 30 June, you should also consider paying additional money into your superannuation fund. This is tax effective for sole traders in particular, and often small business owners. In doing so, it is imperative to ensure you haven’t exceeded the superannuation concessional contribution limits and the employment income threshold. Please contact our office if you would like to know more about how much you can put into super.

If you receive income as an employee, you should consider whether you are entitled to the Federal Government’s co-contribution for personal after-tax contributions, up to $500. Although it won’t save you in tax, it will result in increasing your super balance at the government’s expense! Click here for more information on the government co-contribution. We recommend you seek Financial Advice from a qualified financial planner before making a contribution.

3. Pay your employees’ Super Early!

Superannuation contributions for employees are not legally due until 28 days after the end of the quarter. So for most employers, the final quarter’s superannuation is not payable until July 2015. Superannuation is only deductible once paid, so in the above example, the final quarter’s super would not be deductible until the following financial year – 2015/16. To bring forward the tax deduction, consider prepaying your super prior to 30 June – keeping in mind the super needs to be received by the Fund prior to that date. So don’t leave it too late!

4. Review your Debtors

Where sales are made on account to customers, review this list to ensure any unrecoverable debt is written off, hence not included in your taxable income!

5. Review your Stock

30 June is also the time in your business to conduct stock counts. This will not only ensure accurate reporting of business performance, but is also an opportunity to identify slow moving and obsolete stock that should be written off and not accounted for in your final stock listing. Lower stock values reduce the amount of tax you will pay!

6. Review your current Asset/Depreciation Schedule:

This schedule will contain details of assets that are currently being depreciated by the business. Identifying obsolete assets that require scrapping, and updating effective lives (depreciation rates) may also result in a higher tax deduction for your business.
The recent Budget release announced that for small businesses an immediate deduction can be claimed for assets up to $20,000, acquired and installed after 12 May 2015. This can result in a significant tax savings for the current financial year.

7. Defer Income

Deferring Income is also a common strategy to reduce tax payable. This means you hold off invoicing for some of your clients until 1 July. The tax on this income would therefore be shifted to the 2015/2016 financial year. In deciding whether this strategy works for you, you should assess the impact on your cash flow, and of course, the impact on customers.

This strategy is particularly beneficial considering the company tax rate cut (from 30% to 28.5%) that becomes effective 1 July 2015. Pushing income into next financial year will result in that income being taxed at a lower rate. This advantage is not entirely lost on our non-company businesses, as there is a 5% tax rebate available (limited to $1,000 per individual), again starting from 1 July 2015. Although the company rate cut and the tax discount are not yet legislated, experts predict no resistance from government bodies – so it’s likely we can utilise these tax discounts.

For more information on tax planning, or to receive a fee estimate, please contact us on 07 3036 1600 or enquiries@aspire-ca.com.au.