As we come to the end of yet another financial year, now might be a good time to consider tax planning for FY2022-23.
But maybe not as you might have previously thought about tax planning. There’s been a lot written in the last however long about transformational change in SMEs with the idea of building a stronger business better able to scale over time. And whilst innovation should always be a consideration in business, we thought it might also be useful to create a bit more of a focus on the fundamentals, from a more strategic perspective.
When it comes to tax planning, most small business owners think about it only when they have to – at tax time – when the accountant tells you what your year’s tax bill is. And the ‘planning’ usually comes in the form of planning for how you’ll pay the bill when it arrives.
However now, with SMEs facing pressures on many fronts such as rising costs, rising wages, supply chain issues, competition for talent, it’s likely to pay to keep an eye on all your dollars and cents. So as much as we accountants like to say “cashflow is king”, one of the things you might not have considered in the past is to keep more of your hard earned in your business’ pockets by managing and minimising your tax liability. After all, every dollar you pay in tax means a lower after tax profit on your books – which if you’re ever thinking of selling your business will be important..
As of this financial year (FY21-22), the small business tax rate (for those turning over less than $50M) is 25% – down from 27.5% in FY2019–20 and 26% in 2020-21. But it’s not just about those top line numbers. Over the last several years (and as we especially saw during Covid), Australian legislation and compliance changes for businesses significantly increased in number and complexity, making it a nightmare for most business owners to stay on top of. Thus, making receiving professional tax/finance advice almost a basic requirement for most SMEs.
Consider this. Since the beginning of 2022 (calendar year) alone, we’ve had the introduction of Director Identifiers for ASIC, changes to the minimum wage, changes to company tax rates and personal tax rates and we’re about to see yet another change to the superannuation guarantee as of July 1 when it rises again, this time to 10.5%. That’s a lot of change in a short amount of time. And no doubt there will be more coming as time progresses.
But tax planning (ie tax obligations) isn’t just the ‘day-to-day’ legislation changes. It’s also about considering and then planning around things like;
- Your business structure (is your business best being structured as a Pty Ltd company, a trust, a partnership or a sole trader? Each have benefits and constraints that make them more or less appropriate for where you’re at and what you’re wanting over the longer term)
- Trust distributions/allocations
- Shareholder loans
- Capital gains tax (or CGT losses, rollovers and concessions)
- STP – single touch payroll implementation & reporting
- Superannuation guarantees and concessions
- Tax concessions such as the technology boost and skills boosts, instant asset write-offs, etc
- Incentives to improve businesses like R&D incentives
- Avoiding (or planning for) Fringe Benefits Tax (FBT)
- Accruing expenses in this tax year in order to maximise your deductions for the current year (vs pushing them out)
As you can see there are a host of non-basic-obligation centric items that can be factored into managing your tax affairs to help your business keep as much of its cash as possible for cashflow purposes. However, unless you’re a tax accountant by profession (or someone who lectures in accounting/tax law) chances are you’re not across the nuances of all of the above. Hence it’s always best to plan to chat with your tax advisor whenever you’re considering introducing a change to your business, government regulations change or you’re looking at doing some strategic planning/cashflow revisions.
Of course, if we can help you better plan for and manage your tax planning or you’re planning some changes in your business, you can call us on 6023 1700 or connect with us via Facebook or LinkedIn.
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If you've got financial or business questions, or you just want to run something by us, we'd be delighted to really talk to you – in person, over the phone - call us on 02 6023 1700 - or you can use the form below and we'll get back to you.
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