Tax Planning is the examination of a financial situation from a tax perspective. It involves evaluating the business’s current financial situation then estimating probable income and expenses for the remainder of the financial year. Mostly importantly it involves the analysis of this estimated annual income and suggesting a number of strategies to minimise the tax while protecting the value of the business.
The most obvious benefit to tax planning is minimising tax as far as legally and commercially as possible.
However, there are a number of other benefits to tax planning including:
Cashflow: Tax planning provides guidance on the anticipated tax liability therefore allows cash flow planning for these liabilities. Conversely, it also releases excess tax savings sooner if the liability is expected to be lower than previous years.
Superannuation optimisation: Superannuation caps are strictly enforced by superannuation funds and cannot be changed. Determine the current and likely contributions to a fund can ensure the contribution caps are not exceeded.
Peace of mind: The fear of the unknown is a big contributor to stress for business owners. By completing tax planning the expected tax liability is known ahead of time which assists mental well-being.
Utilise recent budget changes: The Government budget is released in May each year which means there may be new incentives available that can be acted upon before 30th June.
Trust Resolutions: Those who operate from a trust may be aware that Trustee Resolutions need to be made before the end of the financial year indicating how the profit is to be distributed. Tax Planning allows us to calculate the expected profitability and estimate the tax liability of each beneficiary so the resolution can be made with confidence.
See the big picture: Sometimes we are so busy working in the business we forget to work on the business. Tax planning allows us to consider entity structuring, identify profitability areas that can be explored and recognise cost centres that need to be minimised or eliminated.
There are a number of actions which can be taken based on the tax planning including:
- Predict entitlement to tax offsets
- Prepayment of expenses
- Delay income
- Investment in new assets
It is important to remember that spending money to save on tax is only beneficial where the spending will add value to the business. Spending $1,000 to save $200 tax should not be the only justification for a purchase. The purchase should lead to increased income, such as expenses which increase the customer base or lead to greater work efficiencies or assets which increase capacity or streamline processes.
Tax Planning is best prepared after lodgement of the March Business Activity Statement as we can use at least nine months of actual data and estimate the remaining months to calculate an annual income.
Please contact our office to schedule your business for tax planning or book a meeting online https://spinellgroupptyltdappointmentscheduling.as.me/schedule.php
Please note that due to the COVID-19 pandemic we prefer, where possible, that clients do not attend the office. Telephone appointments and online Zoom meetings are available.