With the tax season approaching, it is time for small business owners to review their tax obligations, understand their tax bills, and take necessary steps to minimise their tax liability where possible.
Elements Advisory Group partner and Tax Specialist James Ginty shares effective tax-saving strategies for small businesses in this video.
Business owners can employ numerous tax-saving strategies to legally reduce their tax bill.
Here is the breakdown of the tax-saving strategies discussed in the video. Most could help small business owners save thousands of dollars this financial year.
1. The Correct Business Structure
The first and most important tax-saving strategy is to ensure that the business structure is optimal and fit for purpose. Each business structure, whether a company, sole trader, or trust, has its own tax consequences. Ensuring that the optimal structure is in place allows business owners to protect assets, minimise tax obligations, and reduce legal and operational risks.
2. Maximise Superannuation Contribution Cap
Maximising the superannuation contribution cap of $27,500 annually will help minimise a business’s tax bill. As super contributions are generally taxed at a much lower rate, business owners can use the full capped amount to reduce the overall tax liability of their business.
3. Unused Concessional Caps from 2019
Business owners can utilise the carry-forward unused concessional caps from the 2019 financial year to make additional contributions to their superannuation where there are unused caps from previous years. This allows a business owner to look back to 5 years and make a tax-deductible contribution for all unused amounts. There is additional eligibility criteria to meet, so business owners should contact their accountant prior to making any contributions.
4. Temporary Full Expensing of Assets
Please note that the temporary full expensing of assets is set to expire on 30 June 2023. To take advantage of this generous tax break provision, business owners must ensure that assets are delivered and installed, ready for use before 1 July 2023 to be claimed as a full tax deduction in the 2023 financial year. After this tax-saving strategy expires, small businesses will revert to the ‘Simplified Depreciation’ rules for all assets acquired from 1 July 2023 onwards. These changes will have a significant impact on investment decision-making by business owners, so it’s important to consider these changes well before the end of the financial year.
5. Prepay Expenses
As a small business entity, any expenses that are prepaid and have a service period for the next 12 months can be claimed as an immediate tax deduction. Business owners should consider recurring costs such as software subscriptions or service agreements and, if the option is available, prepay them on an annual subscription before 30 June and claim them in this financial year.
6. Review Your Debtors
Reviewing your debtors and creditors on a regular basis is best practice for small businesses. However, reviewing this close to year-end may also result in significant tax savings. Where you determine there is no or little likelihood that an amount owed to you will be recovered from a debtor, you may be able to claim that amount as a tax deduction via a bad debt write-off or a provision for doubtful debts entry. Of course, where the debtor subsequently receives any amounts, these will be bought in as assessable income in the year in which they are received. Reviewing your Accounts Receivables ledger is essential before your accountant completes your year-end tax returns.
Gearing, commonly referred to as negative or positive when referring to an individual’s investment, like a Rental property, can also be applied at the business level. The introduction of debt into a business can result in increased interest deductions and may be considered as part of a wider debt-to-equity or cost-of-capital strategy for a business. Whether borrowing for commercial property, an investment portfolio, a business asset or simply introducing some working capital, a business can leverage borrowings to improve business ROI and tax effectiveness.
8. Insurance and Income Protection
In the realm of small business management, insurance and income protection are crucial elements to safeguarding the financial stability of the enterprise. Business-owned insurance policies can often be tax-deductible and include income protection to compensate for business interruption, key person risk insurance to cover essential personnel, and business interruption insurance to protect against specific events that could cause a loss of income and increased operating costs.
It is important to note that certain policies may be considered capital-based and, therefore, not tax-deductible. Therefore, consulting with a professional accountant to discuss tax treatment is recommended.
9. 120% Deduction For Skills Training and Technology Costs
Small businesses with an aggregated annual turnover of less than $50 million can take advantage of a 120% deduction for external training and digital uptake expenses such as portable payment devices, cyber security systems, and cloud-based service subscriptions under the Technology Investment Boost and Skills and Training Boost announced in the previous 2022/23 federal budget.
10. Director’s Remuneration Strategy
As a director or shareholder of a company, it is imperative to review and develop a tax-effective remuneration strategy that is suitable for the specific circumstances of the enterprise. A combination of director’s salary or director fees and dividends may be considered for this purpose. Prior to 30 June, it is important to have a clear strategy in place to fulfil reporting obligations to the ATO, including Single Touch Payroll, PAYG, and superannuation.
There is Always More to Know
These are just a few of the many tax-saving strategies businesses can use to minimise their tax bill at the end of the financial year.
If any of these strategies apply to you, we highly suggest contacting your accountant and implementing these tax-saving strategies as soon as possible.
Or you can contact our tax team today at firstname.lastname@example.org or call us on 07 3878 9181 to discuss your specific tax planning circumstances.