Author: Tony Rule, Partner, TAG Financial Services
Don’t let the chance to proactively attend to tax opportunities pass you by before 30 June ticks around again.
Tax planning is not just about making sure your superannuation contributions are up to date, or deciding whether you should buy a big asset.
There are many actions that should be discussed and considered by business owners before they transition into a new financial year. Whilst some of those things are of immediate benefit, some items are actually medium and long term strategies which may not produce a particular tax benefit in the next tax return, but will provide significant tax benefits for many years to come in the future.
Here are just a few you should consider:
Company Tax Rate
Probably the biggest consideration in the month of June 2021 is recognition of the company tax rate dropping from 26.5% to 25% (for most SME companies) from 1 July 2021. Whilst I am sure some business owners will have heard about this, I expect there has been very little discussion about the issues and opportunities associated with this drop including:
Tax paid at higher rates by the company in the past may be trapped due to lower rates of franking available in the future. You should understand the answers to these questions:
- Should you declare a bigger dividend now to access more of the franking credits in your company?
- Should your remuneration be in the form of dividends or wages from the company?
Tax rate higher in this year than in next year can also impact you. Consider the following questions:
- Should a director bonus be declared in the current year for payment early in the next financial year?
- Should the business push hard to finalise work this financial year or plan to invoice in the next financial year?
Other Tax Considerations
Other tax planning considerations that are often forgotten include:
- Have you got the right structure in place?
Who owns the shares in your trading company?
Is it time to move from conducting your business in a trust to a company? - Are you valuing your trading stock on a lower of cost or net realisable value on a line by line basis?
- Do you have an issue with Division 7A loans and what is your plan to eliminate them?
- When is your tax due to be paid and will you have available cashflow to meet those payments?
- Is it time to move some or all of your assets into lower taxed entities?
- Have you got the right structure in place?
It’s not just about Tax
In addition to looking at your situation from a tax perspective, there are a number of other considerations for business owners including:
- Do you have or are you going to have a minority shareholder?
- Are your personal assets safe from the risks associated with your business?
- Is your business meeting your personal goals and objectives?
- What is your exit plan and when will that be?
Don’t be indifferent to tax planning opportunities and issues. Be warned that those who do not actively address their tax situations will pay more tax both in the short and long terms.
If you have any questions or would like to discuss your tax planning, please contact your TAG advisor on 03 9886 0800 or via email.
What should you do now?
Webinar Now Available: EOFY planning for business. In this 15 minute video, Tony Rule discusses how tax planning is more than getting your superannuation payments up to date and purchasing assets before 30 June.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2021. Please do not reproduce without the expressed written consent of the author.