There is a big difference between tax planning and tax return preparation. Tax planning is proactive, and highly recommended as advance planning can make it possible for business owners to effectively minimise their tax obligation, and importantly, pay no more tax than they need to. Tax return preparation, while mandatory is an after-the-fact activity that often comes down to making the best of what you’ve got.
Here, we’ve outlined TEN proactive tax planning considerations that could improve your personal and business tax outcomes.
#1: Understand where your cash is going
“Where does all the money go?” is one of the most common questions business owners ask, and it’s often a symptom of deeper cashflow or operational concerns. Common issues that drain your cash flow include how you source and manage inventory, if you have cash tied up with debtors, Work in Progress (WIP) inefficiencies, and whether you take a salary or receive drawings from the business. Identifying and rectifying your cashflow pain points can significantly improve your business position.
#2: Avoid nasty surprises at tax time
Tax savings are made through proactive planning and tax minimisation strategies include bringing forward or deferring expenses or income. Among your considerations will be the timing of major asset purchases, funding decisions (such as pre-paying interest) and diverting surplus cash to superannuation.
#3: Tax Planning is more than tax minimisation
Effective tax planning is about aligning your tax management to your overall business and financial goals, not just tax minimisation. A multitude of tax planning strategies can be implemented to address your cashflow for business expansion opportunities, as well as debt management, business structure and the set up of trusts that consider your long-term objectives including your personal retirement goals.
#4: COVID-19 Government stimulus affects your 2020 tax planning and beyond
COVID-19 stimulus assistance such as the cashflow boost, apprenticeship wage subsidy and payroll tax relief must be included in your tax return preparation, including:
• Businesses accessing the tax-free cashflow boost receiving payments through BAS or IAS processes from 28 April.
• Claiming the apprenticeship wage subsidy (must be lodged by December 31, 2020).
• If you have accessed refunds for payroll tax relief electronically.
• If you access the increased instant asset write off initiative (now $150,000, up from $30,000 for eligible businesses) by 30 June.
• Eligible businesses accelerating depreciation on the purchase of depreciable assets in the 2019-20- and 2020-21-income years. Deductions must be claimed when lodging your tax return.
#5: Take advantage of the unpaid super amnesty
If required, you have a one-off opportunity, until 7 September to lodge, disclose and pay any unpaid super guarantee amounts to your employees. You can claim deductions and not incur administration charges or penalties during this time.
#6: Avoid extra tax by making your Trust Distribution Resolutions
If a Trustee of a Trust fails to make a resolution to distribute the income of the Trust before June 30, the Trustee may be assessed by the ATO on the Trust income at the highest marginal tax rate of 47%, rather than the intended beneficiary(s) being taxed.
#7: “Cap” your tax using a bucket company
If you have a Trust that generates profits, using a bucket company can be a great strategy for saving tax by allowing you to “cap” the tax on profits distributed to 30% or 27.5%. This is much less than the individual top marginal rate of 47%. There are different tax laws that affect the use of this strategy, so it’s important to seek advice.
#8: Don’t forget your personal wealth
Personal prosperity needs to be planned and the way you structure your assets can make a significant difference to tax and financial outcomes. The setup of asset ownership should align with your overall financial goals. Making the most of tax effective structures including superannuation and SMSFs, can deliver tax savings AND bolster your retirement savings.
#9: Know your options
Understanding your options in relation to paying yourself or the ATO first, and your ability to access deductions or other tax-free pensions can make a significant difference to your tax liability and ultimately your cashflow position.
#10: Get a second opinion
Understanding your end of year tax picture assists with your business decision making options. If you are not receiving a tax scenario comparison report outlining your options and tax implications of decisions, it’s time to get a second opinion.
If you are looking for improved business outcomes or to minimise your business tax liabilities, it might be time to get a second opinion, and we encourage you to make an appointment by calling 03 9708 8801 or emailing email@example.com. At Robinson Voss Partners, we have over 40 years combined experience and expertise in specialised tax issues, accounting and business advice. We are single-minded in our goal to help clients achieve business success and personal prosperity.
General Advice Disclaimer: The information contained within this document is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Robinson Voss Partners (RV Partners) strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.