Tax Mimisation - Businesses

If you are sick of paying too much tax?  Well with less than 100 business days until another financial year ends, now is the time for all taxpayers, especially businesses, to undertake end of year tax planning.  

If you are sick of paying too much tax?  Well with less than 100 business days until another financial year ends, now is the time for all taxpayers, especially businesses, to undertake end of year tax planning.  

If you leave it until the last couple of weeks in June, you may not have enough time to implement strategies to help you minimise tax.  Do nothing, and you may pay substantially more tax than you otherwise could have. 

So what is tax minimisation or tax planning, as it is commonly referred to as? Tax planning is where you sit down with your accountant prior to the end of the year to review the following: 

• Your operating structures (i.e. Company / Trust / Partnership / Sole Trader) and whether they are working for your business from an asset protection, flexibility and tax minimisation perspective.
• Your debt structure and whether it can be altered to improve your cashflow and save you tax.
• Estimate your taxable incomes for the year ended 30 June 2011 and what tax might be payable.  This effectively gives you 12 months to save for the tax bill, even if you choose to do nothing to reduce it. 
• Devise strategies to minimise tax, and most importantly, also build your long term assets or improve the business. 
• Assess whether with sensible decisions prior to year end, you can access  additional ATO and Government concessions and benefits.
• Assist you implement the chosen strategies to reduce your income tax. 

Strategies are varied and will be matched to your particular circumstances and long term goals.  Strategies include, but are not limited to, changing your operating entity, splitting income with family members where possible, utilising government thresholds, paying directors fees and dividends from your related entities, restructuring debt to be more tax effective, maintaining appropriate documentation to avoid the imposition of tax areas such as Division 7A and Fringe Benefits Tax, making superannuation contributions, prepaying expenses, prepaying interest and much, much more. 

Tax planning is particularly important if you intend to sell your business in the next 3 years.  With the right planning and preparation, you could pay no tax on the sale of your business.  There are specific conditions that must be met to enable no tax to be paid on the sale of a business, and proper planning is required well in advance. 

Holmans consider tax planning vital if your business meets one of the following conditions: 

• Has a capital gain from either the sale of the business or assets within the business;
• Your business  has a large taxable profit for the year;
• If you operate out of a company and have had Division 7A issues in prior years (a fancy term for “you owe the company money”);
• You would like to know what your up coming PAYG Instalments or Tax Liability will be well in advance; or
• You have taxable income of greater than $80,000 individually 

General strategies to reduce tax for a business include:

• Delay raising an invoice for income to next financial year where possible.  You should carefully consider the cashflow impacts of the same.
• Bringing forward necessary consumable expenses to before 30 June 2011.  Importantly, purchases of stock prior to year end do not improve your deductions or reduce your profit.  Check with your accountant before incurring large expenditure.
• Where you are a Small Business Entity (turnover less than $2 million) consider buying necessary assets under $1,000.
• Structure your motor vehicles through the business where your private use is high, but the kms travelled are greater than 20,000 per year.
• Carefully review wages paid to the owner to determine whether these should be altered prior to year end.
• Consider additional superannuation contributions prior to 30 June.  

Of course, you should consult with your accountant to ensure your chosen strategies will work. 

SPECIAL OFFER : At Holmans, we can also combine the tax review with a free 30 minute review of your business and whether it has the 25 traits of a successful business.  This is a limited offer and is only available to 10 businesses.