Why tax planning is so important...
Like any sport, there are rules you need to comply with and there are also boundaries you need to stay within. There is also an umpire – his name is Chris Jordan, the Commissioner of Taxation. Finally, there is a timeframe – 30th of June is when the final whistle blows, ending the game.
What you need to do?
We recommend for everyone to hit the pause button and:
- Consider, then discuss the strategies you wish to implement over the next three months to 3 years.
- Bring the numbers up to date and project your taxable income (or loss) prior to 30th of June.
- Financially model the different strategies and interpret the story your numbers are saying.
- Implement a plan and track your progress.
We are good at listening and helping you articulate your goals and strategies.
We are also good with numbers – we can help you with the financial modelling that assists you make the right decision.
So how do you play the game to win?
Tax planning is not only played by businesses. As an individual, there are opportunities which have a positive impact on the amount of tax you pay. Several changes to the tax rules have occurred which have an impact, along with the tried and tested strategies. For example:
Superannuation: member contributions
- An individual can now contribute to super and claim a tax deduction. This is in addition to their employer’s contribution subject to contribution caps.
- If you borrow money for investment purposes, you are entitled to a deduction.
- When deductions associated with an investment exceed the assessable income derived in an income year, the excess is referred to as negative gearing and can be used to reduce the tax payable on other assessable income.
- It is possible to bring forward an expense. Commonly, you can prepay interest on a deductible loan. You can also bring forward other deductible costs, such as adviser’s fees.
The first step in winning at the game of tax planning, is understanding your current profit and cash flow position. You then leverage off your financial position to implement positive strategic decisions which impact both pre and post 30th of June.
In broad terms, there are ways of reducing a liability to tax. These are summarised:
Reducing assessable income
- Derive capital, not income.
- Avoid deriving assessable amounts.
- Select the best capital gains tax option for calculating again.
- Maximise an asset’s cost base.
- Take advantage of tax exemptions.
Increasing deductions and offsets
- Maximise present deductions and concessions.
Reduce your rate of tax/or defer payment of tax.
- Maximise tax offsets.
- Take advantage of averaging rules.
- Delay derivation of income.
- Legally alienate income to another person.
- Transfer income producing assets to another person or an entity.
- Contract with associated taxpayers using arm’s length and market value transfers.
- Use discretionary distributions, via a family discretionary trust
Select an appropriate tax planning “vehicle”
- Consider the family members employed within your business.
- Family partnerships.
- Family companies.
- Family trusts.
- Utilising losses within companies.
- Unit trusts.
- Utilising losses within trusts.
Restructures and succession planning
- Consider the sale/restructure of your business and applying the small business concessions.