But what does tax planning really mean? What’s the objective of tax planning for business owners?
The objective of tax planning is to best utilise the concessions available, make best use of the company, superannuation and personal marginal tax rates and to avoid unpleasant tax surprises later in the year. And to do all of this without jeopardising cash flow or adversely impacting other commercial objectives. Effective planning also involves allowing for Centrelink and other considerations.
The process generally involves reviewing and adjusting owners wages and superannuation, reviewing inter entity transactions and considering prepayment of expenses and deferral of income.
It is important not to consider minimisation of tax as an objective in isolation. It is common to see business owners make tax driven decisions that damage their business. Remember that a $300,000 tax bill resulting from a $1M profit is better than a $25,000 tax bill resulting from a $100,000 profit. Maximising after tax income is what is important.
Many business owners will consider plant and equipment acquisitions and organise funding for superannuation contributions required before 30 June:
The $150,000 (net of GST) instant asset write off makes it very attractive to purchase new equipment, but note that:
The asset must be installed ready for use by 30th June, and
The limit reverts to $1,000 after 30th June.
The motor vehicle limit is only $57,581.
The maximum deductible superannuation contribution is $25,000 per person:
This must be received by the fund by 30th June to be a tax deduction this year.
There are limited circumstances where the $25,000 can be increased.
For companies it is important to ensure compliance with Division 7A (debit loan) rules including documentation of dividends and for trusts distributions must be documented before 30 June.
Please also note that Cash Flow Boost is tax free but JobKeeper Subsidy is not.
Effective tax planning will not only reduce tax payable, but also provide advance notice of future tax liabilities.