Tax Planning - Companies

Tax planning is the process of estimating your current year's taxable income and tax payable and taking steps to minimise this

Tax planning involves 4 steps:

• Step 1- estimate your taxable income for the year (01/07 - 30/06)
• Step 2- calculate tax payable taking into account tax rates, offsets etc
• Step 3- strategies to minimise your tax
• Step 4- ensure you have sufficient $ set aside to pay your tax bill by the due date

Step 1- Estimate your business profit the year (01/07 - 30/06)

Best time to do tax planning is after you lodge your March BAS / reconcile your business transactions up to 31/03

Add to this an estimate of business profit (income less deductions) for April to June. You can estimate this figure OR divide the July - March results by 3

example

July - March $100,000 sales less $40,000 expenses = $60,000 business profit
April - June profit estimate = $60,000 / 3 = $20,000
Total business profit for the year is estimated at $60,000 + $20,000 = $80,000

We recommend you use a qualified bookkeeper & computerised bookkeeping program such as

-Xero (recommended)
-MYOB
-Quickbooks

Step 2- Calculate tax payable

Taxable payable = Taxable income x company tax rate less tax instalments already paid to the ATO

You will need to estimate tax for the whole group i.e. directors, shareholders and spouses as this will affect Company decisions such as declaring dividends

Step 3- Strategies to minimise your tax

You can legally minimise tax by

• reducing income
• increasing deductions

But beware of 'part IV A' which states the dominant purpose cannot be for tax purposes - need to tread carefully and work within the rules

Small business entities have concessions which are favourable to businesses which earn under $10m

Before deciding how to reduce your business income / increase your deductions you first need to determine whether your business is on the 'accrual' or 'cash' basis for income tax

Most businesses are on an accrual basis for income tax and a cash basis for GST

Accrual basis - you are taxed on income when invoiced / you claim a deduction when invoiced i.e. invoice date

Cash basis - you are taxed on income when received / you claim a deduction when paid

Reduce Business Income

Cash basis

• ask your customer to hold off paying you until after 30/06

Accrual basis

• don't invoice your customer until after 30/06

Increase Business Deductions

Cash basis

• pay bills now you would otherwise hold off on paying until later

Accrual basis

• ask your supplier to invoice you pre 30/06 rather than after 30/06

Small Business Entities (SBE)

Special rules apply to SBE's

• temporary full expensing of depreciable assets - special rules apply to cars

Superannuation

Superannuation is on a cash basis - you claim a deduction only when received by the fund

If you want to claim a deduction in the current tax year we recommend paying by  the 20th June

Concessional & non-concessional limits apply

Director Wages

If the business is running at a loss consider reducing Director wages

Before adjusting Director wages consider how it will affect the following, if applicable

• Government benefits such as
  • Family Tax Benefit Part A & B
  • Child care rebate
• Medicare Levy Surcharge (not payable if the WHOLE family has appropriate Hospital Cover)
• Private Health Insurance rebate
• Business profits
• Business cash flow
• Work Cover insurance premiums
• Superannuation guarantee
• Superannuation concessional limits
• Payroll tax
• Applying for a loan in your personal name - banks will use your latest notice of assessment and will want to see that the business is profitable
• Income protection insurance
• Child support
• Selling your business
• etc

Step 4- Ensure you have sufficient $ set aside to pay your ATO and other employee obligations by the due dates

Set aside funds regularly eg weekly to cover BAS, Super, Work Cover, Payroll Tax and Income Tax, if applicable

Don't put your head in the sand - once you are behind it can be very difficult to catch up

If you do fall behind and you are unable to pay your tax when due we recommend you enter into a payment plan with the ATO

But note all future debts must be lodged and paid on time or the payment plan will default. The more you default the harder it will be to negotiate a new payment plan

The ATO can garnish wages and bank accounts if you are not effectively engaging with the ATO to manage the debt. They can also report large debts to Australian credit bureas