With another financial year-end upon us I thought it timely to put together a quick checklist on things you can legally do to pay less tax. Let’s face it no one likes paying tax let alone more than they have to. At the same time it is important to remember that it is better to have a tax problem than not as it means you are making profit. When I hear a business owner tell me they don’t have to pay tax, and they say it so proudly, all I can think of are the bigger problems they have in their business.

Whilst the majority of these tips are applicable to all businesses, in Australia some are only applicable to small business entities based on the turnover test. This threshold has recently been increased from $2m to $10m so in fact many more businesses will benefit. Look into this for your own situation or contact a reputable accountant like PKF!

Another very important thing to note is to take advantage of some of the tips, you need cash flow. I see many advisers tell their clients to do something that requires funds yet they have not even considered whether the cash flow exists to implement. Pretty key step.

Tax Planning Tips

  • Immediate write off of assets – don’t go and buy something if you don’t need it as it will drain cash but if you are planning on capital expenditure for equipment or the like then take advantage of the immediate write off up to $20k;
  • Scrapping or writing off redundant assets – review your asset register. All too often there are assets still listed that you no longer own or have been scrapped;
  • Obsolete stock or adjustments – do a stocktake. If you have stock that is obsolete or the market value has changed (there are various ways you can value your stock) then take advantage of it within your ledger;
  • Prepayments – there are several examples whereby you can get an immediate deduction for expenses that will be delivered over a twelve month period such as interest, rent or subscriptions. If cash flow is good you may want to think about paying for these in advance;
  • Superannuation – superannuation guarantee, the amount paid for employees, for the June quarter is not due until 28 July but if you pay it prior to 30 June you can bring forward the deduction to benefit you now. Also think about making additional superannuation contributions for business owners. Not only does this provide a tax benefit it also builds your superannuation balance and given the limitations around contributions these days it is something that needs serious consideration;
  • Bad debts – if you have debtors that have gone bad. You have tried all endeavours to get paid and it is just not happening then write them off. Review your aged receivables before the end of the financial year;
  • Employee bonuses – if you have people who have qualified for bonuses based on the full year result, and these are absolute, you may qualify for a tax deduction in the current year; and
  • Structure and beneficiaries – the structure consideration is a bit harder to address as a quick tax planning measure than some of the other points considered here, but you should still review as the right structure can save you considerable tax. For example by implementing a trust structure and utilising the right beneficiaries you could bring your businesses tax rate down from 49% to well less than 30%. Make sure you understand who qualifies as a beneficiary and how you can utilise.

This is only a quick checklist. With the right planning and advice, that is specific to your situation and business, you can achieve a great result and not part ways with more of your hard-earned going in taxes than you have to!