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Tax time. For many people, it’s not the most anticipated time of year. Stuffy, disapproving accountants, red-stamped invoices, and that dusty shoebox of faded receipts — tax planning can create feelings of dread for individuals, entrepreneurs and small business owners alike.
But it doesn’t have to be this way. Let us show you the tax planning strategies that can make tax time work in your favour.
Many members of our team once worked in tax accounting and grew frustrated that clients only came in when the financial year was over. At that point, the window for intervention has all but slammed shut. At Finness Advisory, we’ve come up with a way to mitigate end-of-financial year trauma, and make tax planning not only pain-free, but as profitable as possible.
At Finness Advisory, we believe in working proactively, not reactively. For an inclusive cost, we’re there throughout the year. Don’t let your tax issues snowball when we can resolve them with a quick call or email. In the same vein, don’t wait until you have a whopping end-of-financial year tax bill hanging over your head, and it’s too late to do anything about it.
Start now, taking on board our intelligent and legitimate ways to minimise your tax and up your returns. By working with our clients year-round, we help them funnel their cash flow back into their business and implement intelligent tax planning strategies.
Take the stress out of finance. Let’s chat about tax planning strategies in Perth today!
Where do we begin with tax planning? First, our team will take a look at your business’s performance to date and make projections for the rest of the year. Then, we divide the two figures to give you an estimated profit.
Then, using our experience and powerful tax software, we can estimate your outcomes and where you’ll stand at tax time. All the strategies and tips we give are directly tailored to you, making sure the benefit always outweighs the cost.
Before June 30 ever rolls around, there are things you can do to make it work in your favour. Here’s a few:
Pushing your payments until the new financial year will, obviously, lower your taxable income — and give you more time to get on top of them.
Write-off bad debts
Taking a look at your debtor’s ledger before tax time and seeing which debts you aren’t likely to recover allows you to claim them as deductions when you lodge your return.
Letting assets sit
You pay 50% Capital Gains Tax (CGT) on assets that you’ve held for over 12 months, so if you’re planning on selling, it might be better to wait. CGT comes into effect from the day of contract signing (rather than settlement), so if you can push this day past that 12-month mark, even better.
Catch up on superannuation contributions
If you’ve got employees, make sure super contributions are all paid and settled by June 30. For your own super, if it’s less than $500,000 and you’re making voluntary contributions but haven’t yet hit the $27,500 cap, you might be able to bring some of these forward. Remember, these are taxed at a low rate.
Take a long, hard look at your business structure
It might not be serving you in the best possible way, whether due to changes in the business or any other personal factors. Certain structures, like trusts, come with different tax obligations. Small businesses are eligible for a range of tax concessions, courtesy of the federal government.
Below, you can see how a good tax planning strategy can transform a business.
If you have a discretionary trust that generates profits than this strategy may be for you.
An Individuals TOP marginal tax rate is $47%. Yikes!
By using a ‘bucket’ company strategy you could ‘cap’ the tax on profits to 30% or 25%.
Let’s see this strategy in action.
Assume a trust earns $300,000 in profits from business activities.
Option 1: Distribute profits 50 / 50 to Individuals 1 and 2. Total tax (inc. Medicare Levy) payable = $87,134 (29% tax)
Option 2: Distribute $100,000 each to Individuals 1 & 2 and distribute balance of $100,000 to a “bucket” company at a 25% tax rate.
Total tax payable = $74,934 (25% tax). (Note: This strategy assumes that the $100,000 in cash is available to be distributed to a bucket company, otherwise you would need to enter into a loan agreement and navigate a few hurdles.
The cash in a “bucket company” can be used to invest in shares, property, or to lend to other entities at a specific interest rate.
The money could be taken out of the company in future years by paying you or a family member a franked dividend, via a trust distribution strategy.
HOWEVER: You need to discuss this with us BEFORE you do it. The tax laws can be complex and there are different rules on whether your “bucket company” can use a tax rate of 30% or 25%.
As your Accountants, we are very aware of these tax laws and can make this easy for you.