Summary

Proper tax planning is essential for all businesses and is about more than just reducing your tax bill.  Tax planning enables you to reflect on the performance of the business and plan the next stages of growth.

In Detail

The process of tax planning involves forecasting the accounting profit or loss for the business for the financial year, estimating tax adjustments, implementing strategies to minimise tax liabilities and planning for how the income for the year will be taxed, and estimating tax liabilities and outlining the due dates for lodgements and payments.

Why is tax planning important?

Tax is a cost for all businesses and is often a significant portion of turnover. Without proper planning, its easy to fall behind on your obligations and build up a debt with the ATO. As you’ll see below, most strategies that are available to minimise your tax liability are time sensitive and without proper tax planning, you might miss out on significant tax savings!

How tax deductions work

We wanted to firstly note that a lot of the strategies are aimed at reducing your taxable income by creating additional tax deductions. Before you consider the strategies below, it’s important to understand how tax deductions work.

A tax deduction reduces the taxable income that you pay tax on rather than being a tax credit or offset.

To explain that with an example, let’s assume your business has a taxable income of $100k before any of the below strategies are implemented. If you didn’t make any changes, the tax on that $100k would be $25k assuming your small business is operated through a company.

If, as a result of undertaking tax planning you identified additional tax deductions of $50k, your taxable income would be reduced to $50k (the original $100k less $50k of additional deductions) which, assuming the same 25% tax rate, would result in tax payable of $12.5k.

As you can see from this example, the additional tax deduction of $50k has resulted in a $12.5k tax saving in that year and not $50k.

Our top strategies to minimise your tax liability

• • Bring forward expenses
  • Contribute additional super
  • Pay super for employees before 30 June
  • Keep a logbook for your car
  • Consider if your business structure is still appropriate
  • Immediate write off of assets
  • Write off bad debts
  • Small businesses – plan for future CGT concessions
  • Review your trust distribution strategy
  • Loss carry back for companies
  • Tax consolidation for groups
  • Don’t forget your personal deductions

Download your free copy of our 2022 Tax Planning Guide for a detailed explanation of each strategy.