This is the time of year, before year-end, that you need to ensure your tax planning is complete. When it comes to tax planning, knowing where to start and what you need to focus on can be overwhelming.
As a Business Advisory Service provider, Lawrence Group assists Australian businesses with strategy implementation and advice around effective tax planning every year. Unsurprisingly there are a number of factors which continue to arise every year, however when these factors are considered it can drastically improve the effectiveness of your tax planning endeavors. Here are 5 tips to make sure your tax planning efforts don’t go to waste.
Know your Tax Rate
Your tax rate can change depending on a number of independent factors from ATO Updates, your individual financial situation, or if you’re a business owner, your business structure and annual turnover will affect your tax rate. A quick guide to help you plan for your tax is fleshed out below to help you easily identify where you sit.
Individual Tax Rate
|Taxable Income||Tax on Income|
|$0 – $18,200||Nil|
|$18,201 – $37,000||19c per $1 earned (over $18,200)|
|$37,001 – $90,000||$3,572 + 32.5c per $1 earned (over $37,000)|
|$90,001 – $180,000||$20,797 + 37c per $1 earned (over $90,000)|
|$180,001 + Over||$54,097 + 45c per $1 earned over ($180,000)|
*This does not include the 2% medicare Levy Surcharge
Business Tax Rate
|Sole Trader||Same tax rate as individuals|
|Base Rate Entity Company||27.5% on every $1 earned|
|Company||30% on every $1 earned|
*It’s important to note that companies pay tax on EVERY dollar earned, there is no tax-free threshold for businesses.
What’s the difference between a base rate entity company & a regular company?
A Base Rate Entity is a company that is eligible for the lower tax rate depending on two important factors:
What is considered base rate entity passive income?
Don’t forget your Super
Your super is taxed too, during the accumulation phase of your super contributions you’ll be taxed annually at 15%. You only cease being taxed once you enter retirement.
Make Sure You Have a Business Strategy
As a business owner, there are a number of strategies available to you that you can implement in order to gain more control over your financials when tax planning.
Payroll exemptions apply to businesses who incur wage costs of $800,000 annually or $66,667 monthly. These exemptions are assessed at 5.5% per employee over the threshold. It’s important to note that trainee and apprenticeship wages are exempted if certain criteria are met.
Often overlooked, the research and development tax offset can help reduce your tax liability and is a strategy you should definitely consider when tax planning. If your company is currently involved in research and development activities to acquire new knowledge, you may be able to claim the expenses acquired during the fulfillment of these activities.
You can claim a tax deduction on bad debts, however, they need to be declared bad first. Make sure you also carry out a thorough stocktake and take the necessary steps to write off any obsolete or damaged stock.
It’s also helpful to remember that your closing stock has a substantial impact on your gross profit, which in turn has an impact on your taxable profit.
Why? Delaying your payments will reduce the amount of assessable income you earned in the current financial year, reducing the amount of tax you need to pay. This is a great tactic if your receipts of income are set to place you in a lower income bracket.
If you’re already on a considerably high instalment rate with the Australian Tax Office, you can actually improve your cash flow by adjusting your PAYG instalments. However, you MUST have completed your interim account and tax planning prior to adjusting.
*Be aware that you can receive penalties from the ATO if your payments are over calculated for EOFY, so consult a business advisory service before proceeding with this strategy.
Some business structures may be better suited to you than the structure you’re currently operating on. Depending on your annual turnover, it might be time for you to consider restructuring your business.
Consult a business advisor to discuss your options, but whether you’re in your first year of business, evolving from a partnership into an incorporated company, or thinking to expand your business entity into a group – a business advisor will help you weigh up the benefits of each and determine the best course of action for you.
Don’t Dismiss your Compliance Requirements
Effective tax planning always accounts for your legal, ATO compliance requirements, these requirements should never be dismissed. Some of the main compliance requirements to consider are:
How Can A Business Advisory Service Help You?
Business Advisors are well equipped to provide effective business strategies that ensure you’re in the best position possible for your business. At Lawrence Group, our business advisors are experts that monitor all new changes and regulations implemented by the ATO and can help you to determine your obligations, legal requirements and help you prepare for changes that may negatively impact you.
In addition to the strategies above, business advisors have a range of strategies available to you to help you make the most of your trust distribution resolutions, shareholder and director loans, ensure your ATO Audit protected and will assist you in minimising your tax liability overall.
If you’re a business owner seeking to streamline your internal processes & grow your business, Lawrence Group has a diverse team of specialised business consultants that can provide expert advice & solutions that will help your Perth based business expand. We’ve been helping businesses like yours grow for over two decades & we’d like to help your business too.
This article is general information only. It does not give business, accounting, taxation, financial planning or other professional advice or service. It does not consider your specific situation, objectives or needs and if personal advice is required, a detailed analysis of your particular circumstances would need to be sought. Please see our Privacy and Disclaimers page for further information.