Tax Planning and Financial Year End Options
In a few weeks, Holmans attention will turn to Tax Planning and Minimisation strategies that must be implemented before 30 June… so here is quick Q & A regarding tax planning and minimisation strategies.
Why should I do Tax Planning?
Tax planning is essential as it provides you with the opportunity to actively seek ways to reduce your tax liability. This can be achieved by implementing tailored strategies to reduce the impact of capital gains, prepaying interest, investing in negatively geared investments, assessing your current structures and other similar proactive measures prior to 30 June. After 30 June, your accountant is simply recording history and can’t do anything proactive to help reduce tax.
Most importantly, tax planning also allows you to budget for your up-coming tax liability by estimating the amount payable early (including PAYG Instalments).
If you have ever found yourself saying…. I have had a great year this year I wonder what my tax will be, or I didn’t know about that tax instalment/liability, or I didn’t think my tax would be that large, or I wish I paid less tax…. then you need to consider doing Tax Planning.
When should I see my accountant to complete Tax Planning?
- Any time from Mid-April to Mid-June 2022 – Ideally, your March 2022 BAS should be prepared, the Federal Budget handed down (was on 29 March), and you are able to estimate the likely income for the remainder of the tax year. Importantly, any later than mid-June and you may not have time to implement the chosen strategies. Accordingly, if you wish to complete tax planning for the 2022 year, and haven’t already arranged a meeting with your accountant, it is now time to consider the same.
What strategies are considered?
- Application of new tax legislation (quite a bit this year) and how that might impact your business/tax position.
- Deferral/Timing strategies such prepaying expenses, stock valuations, deferring income, paying superannuation for employees prior to 30 June.
- New investment opportunities (mostly a deferral strategy also), like investing in new business equipment (immediate write-off rules), or negatively geared investments.
- Whether we need to explore more complex structuring options like “bucket companies”, Self-Managed Superannuation Funds, changing structures to accommodate growth, new owners, maximise potential exemptions, loss carry back scheme for “tax loss” companies, and/or preparing a business for eventual sale.
- Retirement based strategies including superannuation contributions.
- And many more…. there are just too many possible strategies to list here, and it all depends on your unique circumstances.
How much does it cost?
- That will depend on the complexity of your matters and group structure. A large percentage of our clients undertake tax planning every year…. Even if it is just so they can budget / plan for the expected tax liabilities for the next 12 months. Holmans can provide a fee estimate before commencing any work.
- Will purchasing more stock before year end help reduce my tax? The answer is no. Only the cost of stock “sold” before 30 June counts as a deduction. This is why you need to complete a stocktake each year.
- Should I purchase a new asset in my business? This question is referring to the immediate write-off deduction. This does apply to small businesses again in the 2022 year (note, it does not apply to salary and wage earners). However, you should check with your accountant to make sure the asset qualifies before making any large purchases. Importantly, this deduction is a timing benefit only. So, any purchase decisions should be evaluated with normal business logic – will it improve my business, generate more profit, improve efficiency so-on.
- What was new in the Federal Budget? There were a few “goodies” – New deductions for Training and Technology investment which allow an extra 20% deduction on “eligible” investment. We are still waiting on what is “eligible” investment. The extra 20% deduction reduces your tax NEXT tax year, not this tax year. Otherwise, the Federal Budget was a little boring.
- What new Tax Legislation? Too many to go through here and your accountant will discuss with you at your Tax Planning meeting. There are some important changes that impact professional industries (lawyers, doctors, accountants, architects) and anyone operating their business/investments out of a Family Trust.
- Should I make a voluntary superannuation contribution? Possibly. This will depend on the amount you have already contributed this year, your contribution limits, your Total Super Balance (TSB) and your current tax rates. This is something to discuss with your accountant prior to making any extra contributions. You will also need to check your eligibility to make such a contribution. Any contributions should be made no later than mid-June (check your super fund’s cut off dates) to ensure they are received by the Superannuation Fund on time (well before 30 June).
- Should I setup a Self-Managed Superannuation Fund (SMSF)? A SMSF doesn’t change your ability to claim a deduction (no extra benefit tax wise), rather it just makes it a bit easier to transfer funds and allows you control over your superannuation investments (control and influence). Whether that is worth it is a much bigger discussion and you should contact Holmans’ SMSF expert Sharee Webster (Direct line 5451 6802 or email email@example.com).
Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.