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Tax planning plays an important role in strategically reviewing your financials to avoid paying unnecessary income tax, and it is an essential tool for any business. Tax planning allows us to forecast your current taxation position for the financial year. Knowing your taxation position enables us to proactively provide taxation strategies and allows sufficient time for their implementation.
As part of the government stimulus announcements on the 6th of October 2020, the instant asset write-off rules were replaced by the temporary full expensing rules for most businesses. This allows eligible businesses to claim an immediate deduction for the cost of eligible asset purchases. For example, assuming the corporate tax rate for a base-rate company, buying an eligible asset for $200,000 would reduce your taxation position by $50,000. These rules will end on the 30th of June 2023, and most small businesses will once again be subject to the instant asset rules, with the immediate deduction limit reducing to $20,000 starting from the 1st of July 2023. This presents real tax-saving potential. However, it is also crucial to consider the depreciation limit on motor vehicles, business cash flow, and whether your business truly needs the eligible asset.
Maximising your concessional superannuation contributions and, if eligible, utilising your available carry-forward concessional superannuation contributions can result in significant tax savings. It is crucial to assess your eligibility for superannuation contributions and be aware that if your income for Division 293 Tax purposes exceeds $250,000, there may be a 15% Division 293 tax payable on your superannuation contributions.
It is crucial to prepare your Trust Distribution Elections promptly and in accordance with your Trust Deed. Additionally, we must consider Section 100A to ensure compliance with taxation laws and address any concerns regarding unpaid trust distributions. Taking proactive measures and identifying eligible beneficiaries early on can facilitate tax-effective distributions.
Reporting a closing stock figure higher than the actual amount leads to unnecessary taxation being payable. It is essential to thoroughly review your closing stock as of June 30th, ensuring the write-off of any obsolete stock and considering all available methods for calculating stock value.
It is important to review your Accounts Receivable, one to ensure that all outstanding invoices are followed up, to assist with cash flow and two, if any invoices are not to be paid – for example the debtor is now insolvent, it is useful to write this amount off to bad debts before the end of the financial year to claim the taxation deduction.
By prepaying expenses such as rent, insurance, rates, and subscriptions before the 30th of June, you can claim up to 12 months’ worth of prepaid expenses as a tax deduction, effectively reducing your current year’s tax payable.
Whether or not tax saving strategies are implemented it is crucial for businesses to be aware of their taxation position. No-one likes a surprise bill from the Australian Taxation Office. As you can see, these area’s can be complicated and the taxation law is constantly changing, this is why it is important to have a proactive accountant in your corner. Being aware of your situation can assist with managing cash-flow effectively, but it is also a great chance to review your overall business plan and performance. This can be a great time to review your current business structures to ensure you are set up correctly and it is also a great time to reflect on your business, review your goals and put together a plan for the upcoming financial year.
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