7 Essential Last Minute Tax Planning Tips
The end of the financial year is very close. Here at the Fox Group, we have had another busy tax planning season with our clients. Each year we work closely with our clients to achieve a number of important outcomes. As Accountants and Business Advisors, our advice is only valuable if is timely, and hence why we do focus heavily on tax planning. Timely tax planning advice has many benefits including:
Identify opportunities for future years
Review of trading performance
To get the full benefit from tax planning you should be working with your Accountant early enough before the end of the financial year to ensure that the right decisions are made, and all opportunities are taken advantage of. In addition, your bookkeeping should be up to date. You can’t be 6 months behind with your numbers and expect your Accountant to be able to give you guidance. Before any tax planning strategies can be put in place, it is important to know where the starting point is – i.e. If we did nothing, what would the tax situation look like?
Whilst good tax planning should commence each year in May, there may still be opportunities for those of you that may have found yourself on the back foot and without the right guidance.
If you are using the accruals method for accounting, you have the opportunity to not raise June invoices until 1 July 2021. This will delay paying tax on that income until the next financial year. Be mindful of your cash flow though as doing this may impact payment terms.
Bring Forward Expenses
Firstly, we never advise buying something just for the sake of tax minimization if the purchase is unnecessary. Don’t spend $1,000 just to get $470 back. What you can do though is look at any future expenses such as repairs or staff training and pay them before 30 June to bring forward the tax deduction and minimize this year’s tax.
The Prepayment rules allow you to alter the timing of deductions for certain prepaid expenses. A small business can use “the 12-month rule” for things like rent, bank interest, marketing consulting fees, or accounting fees. If the eligible service period (the period during which the work is to be done under the agreement in return for the expenditure) is less than 12 months and that period ends in the next financial year, you can prepay those expenses in this financial year and get a deduction for that expense. This can save a large amount of tax if your cash flow allows you to pay these types of expenses in advance.
Superannuation contributions are taxed within a superannuation fund at a rate of 15%. This is compared to personal income tax levied at your marginal income tax rates and the company tax base rate of 26%. There is a noteworthy taxation advantage obtained in contributing additional funds to superannuation. It is noted however that once superannuation is contributed, it is generally unable to be accessed until retirement or retirement age.
For people with less than a 500k balance, they can throw in extra and still get a deduction if they have not used their caps in prior years. As Accountants we can’t tell you that you should pay money into superannuation, you will need to speak to your Financial Adviser about that, but we can tell you the tax advantages of doing so.
Payment of Superannuation Guarantee (SG)
Superannuation payments for employees are specifically tax-deductible when the payment is made. Generally, however, payments are not required to be made until 28 days following the end of each quarter. Bringing forward your superannuation payment by 28 days for the June quarter, that is making the payment before 30 June 2021, would bring forward your tax deduction by a year, being claimed in 2021 rather than in 2022.
Accrual of Staff Bonuses
An entity can be entitled to an income tax deduction for staff bonuses when these are ‘incurred’. It is well settled that an entity can claim an income tax deduction for a staff bonus that is accrued at the end of the year, where the entity is committed to the amount. We note that the payment of the bonuses, however, would not be assessable in the hands of the recipient until it is received.
There is no better time to write off a debt than pre-30 June. Push as hard as you can to collect, but if it is a lost cause, write it off pre-30 June and save tax on income you were never going to receive.
Whilst you should be spending much more time with your Accountant to plan an effective tax planning strategy, it isn’t too late to possibly save yourself some tax.
At The Fox Group, our experienced Accountant and Business Advisers work extremely hard to ensure that our clients don’t pay any more tax than they need to. If you are missing out on timely tax planning advice, give us a call on (02) 4353 3889 to schedule a call or a visit with us.