It’s only May but if you haven’t already, now is the time to start thinking about the end of financial year. It may still seem some time away but those weeks will skip by and we’ll be there before you know it.

Last minute tax planning can be a recipe for poor decisions and you need to work through the cash flow implications on anything you decide to do. There is no point saving some tax if you create a cash flow crisis in the process. Tax planning these days’ falls into three baskets:

• Health & hygiene;
• Timing & efficiency; and
• Permanent savings

Health & hygiene
There’s no excuse for any business, regardless of size, for not completing a health and hygiene review prior to year end. This review is about making sure that your business has attended to its tax housekeeping. Included in this are:

• Writing off any damaged or obsolete stock;
• Writing off any bad debts;
• Scrapping any obsolete plant and writing it off your asset register;
• Ensuring any loan payments necessary to satisfy Division 7A loan agreements are made; and
• Complete any inter entity management charges

All of these actions need to be taken before June 30 and your accounts need to reflect that the actions were completed e.g., a bad debt that is written off should be reversed out of your debtors ledger before June 30.

Timing & efficiency
Managing timing and efficiency is about causing your tax liability to fall at the best time for you. You do this by bringing forward expenses or deferring income. The efficiency part is about ensuring that tax is being paid by the entities or people where you can enjoy preferential tax rates. Think about the following: 

• Declaring bonuses before June 30, even though they may not be paid until after that time;
• Declaring director’s fees;
• Ensuring June quarter Superannuation Guarantee Charge (SGC) payments for employees are made before June 30;
• If you are a Small Business Entity (SBE), prepaying some of your expenses before June 30;
• Paying dividends;
• Committing to necessary consumable expenses pre June 30;
• Making Trustee resolutions to distribute trust income;
• Deferring income until after June 30, where possible;

 
Some of these strategies revolve around deferring income to the following year and bringing forward expenses and tax deductions into the current year. Don’t always accept this as the right strategy. If you are in a start-up business and not generating a profit yet, you may not want to defer your taxing point. While saving tax always seems like a good idea consider the rate of the tax saving. It will be a mix of personal and possibly company tax rates. Saving a tax dollar this year where the benefit may only be 20 cents in the dollar, is poor economy if next year you will pay 46 cents on the same tax dollar. Tax timing requires you to have a view about your current year position and any differential position for the following year.

Permanent savings
Permanent savings always sound attractive but you need to have the cash flow to manage them and be comfortable with both the short and long term outcomes. These strategies include:

• Maximising your superannuation contributions;
• Donations; and
• Consider holding your life insurance through your superannuation fund

We’ll look at some other opportunities before year end but this gives you something to start working on. Keep your cash flow position in mind. You need to work out the cash flow effect of any decisions you might take. The more available cash you have, the easier it will be to make all of this work. So, perhaps now is the time to start following up your debtors and chasing some of those old accounts. 
  

SPEAK TO US TODAY regarding tax planning for your business.     
          
It is a smart decision

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.