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Tax Planning Strategies for Entrepreneurs and Business Owners

Tax planning involves forecasting your expected results for FY22, analysing opportunities to reduce tax liabilities, then executing a plan to keep tax to a minimum.

Does your business pay a decent amount of tax each year? If it does, you’re doing great! Paying tax is a sign of financial success and business profitability. But before you celebrate another successful financial year, have you considered tax planning strategies and whether you have an effective business structure in place? Tax planning can help minimise the tax payable and avoid any nasty surprises at lodgement.

As EOFY approaches, BlueRock accountants are working with entrepreneurs and business owners to implement tax planning strategies. This involves forecasting your expected results for FY22, analysing opportunities to reduce tax liabilities, then executing a plan to keep tax to a minimum. Tax planning allows businesses to keep more of those hard-earned profits and gives entrepreneurs time to plan for any upcoming payments.

General Business Tax Planning Strategies

Now is the time to get cracking on tax planning for your business. Let’s explore a number of useful tax planning strategies that can be implemented to reduce your tax bill.

Perform Regular Stocktaking

Doing a year-end stocktake is essential for a business as you want to ensure that stock loss, damaged or obsolete items are accounted for and claimed as a tax deduction.

Consider Prepayments 

Did you know your business can prepay certain expenses such as rent, interest, insurance and other services up to 12 months in advance to take advantage of deductions in the 2022 financial year?

Take Advantage of the Instant Asset Write-off

Businesses with an aggregated turnover of up to $5 billion can claim unlimited instant asset write-off for eligible in-use assets. Before you go ahead and buy the latest Audi or Range Rover, the luxury car depreciation limit is $60,733 for the 2022 financial year, meaning only up to that amount can be immediately claimed.

Review Your Fixed Asset Schedule

Review any items you could potentially write off to clean up your fixed asset register

Utilise Loss Carry-Back 

For business up to $5b in turnover, 2021-2022 and 2022-2023 losses can be offset from profits in 2018-2019 and later tax years.

Pay Bonuses 

If bonuses are part of the remuneration for your business, in order to claim the bonus as a tax deduction for the amounts, you need to be committed to making the payment prior to year-end, including making a written record of the commitment.

Pay Superannuation 

Superannuation is only deductible when paid. Consider paying any super liabilities before year-end to claim the deduction in the 2022 year. Ensure you make the payment prior to 25 June 2022 to allow for a superannuation clearing account to process the payment before 30 June. 

Review Bad Debts

You may be able to claim deductions for income that cannot be recovered from debtors. Unrecoverable income is also known as 'bad debt'. Review your aged receivables before 30 June and write off any bad debts.

What to Do if You are Trading as a Trust

If you operate your business as a Trust, you need to distribute the profit before 30 June. As such, there are additional things to consider:

  1. Who should receive the profits from the trust? The decision needs to be documented in a trust minute prior to 30 June.
  2. It is important to check that the Trust Deed allows you to distribute the profits to each beneficiary in the manner you propose.
  3. Is there any ATO administration required, such as a family trust election (FTE)? This can be relevant if your trust receives franked dividends or has losses.

ATO and Section 100A – Trust Distributions to Adult Kids

The ATO is cracking down on situations where trusts make distributions to a beneficiary, and someone else apart from that beneficiary receives the benefit of the distribution. An example is where a distribution is made to an adult child, and the parents keep the money. 

As such, the ATO's new interpretation of Section 100A needs to be considered when making distributions. 

Have You Considered Fringe Benefits Tax?

Fringe Benefits Tax (FBT) can apply where a payment is made to an employee but in a different form to salary or wages. The most common benefit provided is a car. There are some exemptions that apply, including:

  • Minor and infrequent benefits provided of less than $300; and
  • The provision of portable electronic devices mainly for use in the employee’s employment (limit of one per employee per year).

We recommend reviewing any benefits provided to employees and lodging a nil FBT return.

It is important to note that no FBT applies where an employer simply reimburses or pays an employee's work-related expenses while working from home.

Personal Services Income

If you are in a personal services industry such as a medical profession, graphic design or IT consultancy, your income earned is derived from personal skills. These incomes are deemed as Personal Services Income (PSI). The ATO defines PSI as income derived by the personal efforts or skills of an individual.

The ATO looks through any trading structures such as trusts or companies to attribute any PSI earned by an individual from their personal efforts to the individual themselves. Therefore, it’s important to ensure that any profits earned when operating via a trust or company are appropriately paid out to you before 30 June 2022.

Personal Tax Income

Personal tax income (or individual) is based on your wages, salaries, and any other form of income such as capital gains from cryptocurrency or stocks. Our article on tax planning for individuals explains what to expect in terms of declaring income that you haven’t already paid tax on and how to maximise your tax return so you can claim back money that is yours.

Voluntary Superannuation Contributions

If eligible you could benefit from a personal tax deduction by making a personal concessional contribution to super before 30 June via:

  • The Concessional contributions cap is $27,500 or
  •  Catch-up contributions from unused prior year caps. 

Please note that we recommend you speak with your financial advisor prior to making any contributions to superannuation. 

Get the Support You Need to Grow Your Business’ Wealth

No matter what your business’ circumstance is, there are different points you should consider in order to make the most of your tax return. Whether that relates to your general business tax planning, personal tax income, superannuation or fringe benefits, BlueRock's business advisors can help make tax time less of a burden for you. 

If you’re ready to maximise your business’ income tax for FY22, get in touch with one of our accountants now

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