2023Tip 1 – Timing of income and expenses is the focus
In an exceptionally profitable year is it important to focus on the timing of your income and expenses at the end of the financial year to minimise the tax you can pay.
Tip 2 – Invoices can be deferred from May/to June
It may be possible in some circumstances to delay sending invoices until the next financial year instead of invoicing in May or June. This will decrease current year income and therefore tax payable. Why pay the tax now, when you can keep that money in YOUR bank account for an extra year?
Tip 3 – Expenses can be prepaid
Some expenses can be prepaid such as insurance, bank interest, and rent In a year of high profits this is useful for increasing expenses, and reducing the tax payable.
Tip 4 – Change from an accrual-based accounting system to cash for one year
In an accrual-based accounting system when you invoice a client you have to pay income tax on that income. Whereas in cash based system you only have to pay the income tax on the income once you have received it. This can significantly alter the income received for the year and hence the tax payable.
For the very first year that the conversion to a cash based accounting system occurs, the income declared to the ATO is reduced by the year end debtors.
Tip 5 – Review beneficiaries of Trusts
If you are trading through a discretionary trust it is wise to review who may be available to distribute profits to. You may have overlooked someone.
Tip 6 – Pay the current year’s super cap
Pay some money into your super. It is put away for a rainy day and only taxed at 15%.
Tip 7 – Convert personal debt into business debt
The best form of tax minimisation is when you don’t have to spend any additional money, but simply convert your current expenses into a tax deduction. Your home loan interest is one of your largest expenses, so why not convert it into one that pays you back by increasing your tax refund?
The deductibility of a loan’s interest is based on what the borrowed money was used for. By using a planned strategy of running your business expenses through the home loan, the loan can be converted from a private expense to a tax deduction.
Tip 8 – Convert travel expenses to business expenses
If a trip’s dominant purpose is business, then the full travel costs are deductible, even if they include a private portion. By demonstrating that travel is part of a business strategy and plan, then despite any private component, the whole trip is deductible.
Tip 9 – Buy your personal car through your business
If you purchase your family car through the business it can create a tax benefit. If the tax deductions available are greater than the private value calculated by way of the fringe benefits tax. then it’s better to buy the car in your business than out of it.
Tip 10 – A word of Caution
After your planning review it is wise to check out the ATO’s benchmarks on expenditure vs income ratios to avoid raising any of their red flags. Check them out at https://www.ato.gov.au/General/How-we-check-compliance/Small-business-benchmarks/