We’re now only a few weeks out from the end of the financial year (EOFY) and we’re now deep into the tax planning season; if you haven’t already been contacted regarding your tax planning for the year, you will be shortly to make sure we have all the information we need.
Tax planning is an important process as it allows us to forecast your income and tax and calculate what tax you are required to pay, while determining how best to manage it and minimise it.
To help you reduce your tax, we’ve put together 5 key strategies you can implement in your business this financial year
- Complete your Trustee Resolutions before the 30th June 2021.
This is important as it is required that this is completed before the end of financial year otherwise the income could be trapped in your Trust and taxed at the highest marginal tax rate. So, one of the questions is, who can you distribute too?
If you use a Trust, there are a number of people that you can distribute to with a Discretionary Trust.
- Brothers & Sisters
Children & Grandchildren
You can distribute only $416 to children who are minors. That might not seem like a lot, but if you have 3 children and you are in the 47% tax rate, that works to being $586.56 in tax savings.
If you have children who are over 18 and are studying at university, or are not really earning an income, you can distribute up to $21,600, and they will not pay any tax. At the 47% tax rate, that is $10,152 in tax savings. If we increase that to $37,000, they will have to pay $3,667 in tax and your net tax savings will be $13,723.
Brothers & Sisters
If you have brothers and sisters who are studying at university, or are not really earning an income, you can also distribute to them in a similar fashion as demonstrated above. Just make sure no one else is doing the same thing!
Parents, Parents-in-law & Grandparents
If you have parents, parents-in-law and/or grandparents who are self-funded, you might be able to distribute to them in a tax effective manner.
How do you take advantage of this?
You need to have a Discretionary Trust with income and you need to be a small business.
Do I need to pay the distribution?
Yes, you will need to pay the distribution.
What if they receive Centrelink?
If the people you are looking to distribute to receive Centrelink, then this strategy is unlikely to work for you.
- Pay Super for employees earlier
To claim a tax deduction for Super, it needs to be physically paid. By paying your June quarter, or month’s Super before the end of the financial year on the 30th June, you will get a tax deduction for the year.
Paying your employees’ Super a month earlier than you need to can create a significant one-off tax benefit. If you have $20,000 to pay in Super for your employees prior to the 30th June, this can result in a tax saving of up to $9,400.
If this is something that you want to do, you will need to ensure that the payment that you are making is processed before the 30th June. To ensure this is done in time, it is best to process the payment a week before the end of financial year.
- Setup an Asset Entity to transfer your Intellectual Property and other key assets into a protected vehicle.
There are three things that we can accomplish here; the first and most important is better asset protection by having the assets in a separate entity to the trading business. The second is being able to take security over the trading business. The third is that you can prepay a license and lease fee to this new entity for the assets that it now holds.
Imagine moving $200,000 and prepaying a $30,000 in a lease/license fee. Even at the company tax rate you can defer paying tax on this of $7,800 and with company taxes reducing next year there is also a permanent tax saving.
Choosing the right strategy for your SMSF is the key. One great strategy can be to purchase your business premises in your SMSF or purchase an existing commercial property, that will be owned by your SMSF. Either strategy means that you can get your Super money working for you now and save significant dollars.
If you already own a commercial property outside of Super, it may be worthwhile looking at transferring the property to your Superannuation Fund. It may help to free up cash and possibly even reduce your personal non-tax-deductible debt on your mortgage.
For example, one of our clients owned a commercial property outside of their Superannuation Fund. The property was worth $275,000, with a small loan of approximately $50,000 left on the premise. They netted $205,000 (after Capital Gains Tax); that left them with only $50,000 on their personal mortgage. A great outcome for the client.
Furthermore, they now have net tax savings of $2,175 every year, because the income from the property is taxed at 15%, not 34.5% and 39%.
It is important to review any Stamp Duty implications with the transfer of property, and best to seek advice as to whether you will have to pay Stamp Duty on the transaction.
- Prepay your accounting fees and any other expenses for 12 months.
It may seem a bit cheeky, but you can prepay expenses for up to 12 months and claim them as a deduction and that does include us. Furthermore, we provide a discount for prepaying for 12 months and you will find a lot of other providers (especially software) might provide decent discounts for this strategy. So not only will you save tax, but you can also potentially reduce your costs.
For many business owners, the end of the financial year is one of the most stressful few weeks on the calendar, but it doesn’t have to be. With the help of PCR Accounting & Advisory, you can reduce your business tax and maximise your savings with effective tax planning.
If you need help with your business’ tax, contact our expert tax accountants at PCR Accounting & Advisory on 03 9847 7516.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.