It's not (unfortunately), but there are rules and boundaries, a biased umpire (in the ATO), and a time limit (30 June) when the game ends.

Why Tax Planning is SO Important

Tax is a cost, like any other expense of the business, so can be managed and a better result   achieved.   However, it must be achieved within the rules and boundaries to be effective and it is a key part of forward planning and strategy.

The recommended method for planning is:

- Bring the financials up to date and estimate taxable income for the year.

- Consider the strategies you wish to implement for the next year or two (key goals, strategies for sales and profit growth, necessary capital expenditure, where you want the business to be, etc.)

- Model those strategies and understand what the numbers are saying – trends, margins, etc.

- Attend to the tax planning for end of the current year and save or defer where legally possible.

- Implement the plan for next year, and apply the tax saved towards working capital for the new plan.

- Track progress regularly and make changes as needed.

Tax Planning for Individual Tax Payers

Tax planning is not only for businesses and there are benefits which can reduce personal tax payable.   The most popular strategies are:

Superannuation contributions

Whether through salary sacrifice or personal contributions the maximum deductible contribution is $25,000.   There is a top-up concession where the last year maximum was not used   and the balance of super is under $500,000.   Also, watch the near and long-term returns achieved by your Fund and their charges.   Consider a change to a better improving Fund because a little better now can significantly increase the balance for retirement.   However, before changing check whether you have Insurance held within the fund.   (Ask us for a recommendation if you are unsure).

Negative Gearing

Not a lot of benefit to implement at the end of a financial year but consider for the next year, whether in property or equities.   The loss (income less direct expenses, interest, borrowing expenses, depreciation) can be offset against other income.

Costs re work

This could include work clothes, laundry of those clothes, use of your car for work, cost of working from home, purchase of tools or electronic equipment, software, interest and telephone, fees for memberships, attending courses, and professional development costs.

The rules are simple; make sure the costs were necessarily incurred for work, that you have the documentation, and that the costs were not reimbursed by an employer.

Tax Planning for Businesses

The first step is understanding the current profit and cash positions.   The strategic decisions taken will impact income tax now and for the next year.   You should also consider factors like future borrowing needs so profit may need to be higher to access the loan required.

This is a Summary for reducing tax (in broad terms):

Reducing assessable income

- Avoid deriving income before 30 June (eg., cash received before the service or products are delivered)

- Derive capital rather than income

- Is any income exempt or tax free (some grants, capital settlements)

- If a capital gain, are Concessions available?

Increasing deductions and offsets

- Maximise deductions (excluding non-deductible expenses like entertainment)

- Claim immediate write-offs ($30,000 up to March, $150,000 to 31 December)

- Accrue expenses, where the cost is known and will be paid shortly after 30 June

- Use Federal Budget concessions where available.

Reduce the rate of tax

- Consider tax offsets

- Spread the income across entities where the tax rate is lower

- Move income producing assets to another entity where the tax rates are lower

- Consider the use of tax entities (partnerships, companies, trusts, using tax losses, superannuation esp. SMSF's).

Stocktake

The Tax Act requires each business that buys or manufactures product to do a stocktake at the end of each financial year.   As well as meeting tax obligations a stocktake results in accurate financial reports, helps you understand your stock levels, (clear the excess or buy more), improves cashflow by identifying slow moving stock, analyses your pricing strategy, and is important to planning a business improvement strategy.

However

Tax planning can usually save some tax.   Even if the saving is not big, you al least know what the tax payable will be and when, and you can provide for it and so avoid the worry when it is due but there won't be enough to clear the tax due.

Also, there may be other concerns that are just as big as tax, like asset protection, borrowing for a new home or investment, succession issues, cash flow and working capital.   Bear all of these in mind, and get the result you want, or as near as possible.   It's about getting a better tax outcome but there may be other issues to consider and are just as important for you.

Finally, we are good with numbers and the financial modelling that helps you make the right decision before you take action, we can assist to articulate goals and strategies, project profits and cash flow, and keep you on track with tax planning.   It's a small investment for a lot of benefit.