Here are 10 ways you can save tax in your small business here in Australia.

  • Claim all of your deductions
  • Use the small business tax concessions
  • Use the instant asset write-off
  • Review your business structure
  • Pay superannuation contributions
  • Keep accurate records
  • Keep on top of debtors and creditors
  • Prepay expenses
  • Get professional help
  • Invest in training and development

Welcome back my friends, today I am going to go through how you can save more tax in your small business here in Australia.

Nobody likes paying tax but sadly it’s a fact of life, what is it they say?  There are no certainties in life other than death and taxes?!  But what we can do, is use the rules in place to ensure we pay as little tax as possible. 

Working out how to pay less tax does fall into the tax planning remit.  If you are interested in tax planning and want to know more about it, I suggest you go back and watch this video which goes into more detail around what tax planning is and why you should be doing it.

Before we head into the the realms of these 10 tips on how to reduce your tax, it must be said that before you go ahead and do anything, touch base with your accountant first.  Your accountant is your finance team and has your back so they are best placed to tell you whether or not you are able to access any or all of these items.

Why would you want to pay less tax?  Well let’s face it, the money is better off in your pocket than the government’s who have a tendency to mis-manage it.  But more so than that, you can use it to grow your business, reinvest in something, take some salary out, improve your cashflow…the list is endless.

So let’s get into these tips:

1. Make sure you are taking all of your deductions.

    It sounds like a bit of “duh” comment, but poor or sloppy record keeping will often mean that not all of your deductions are included.  What’s more, if you aren’t strict about using the business bank account to pay for all of the business expenses, they aren’t hitting the books in the first place so they’re just lost in a big black hole.

    A couple of things here, firstly, you really should have a separate business bank account.  If you haven’t, it needs to be the top thing to do next on your To Do list.  Why is it so important?  You need to be able to separate your business and personal spending.  If you are a sole trader you might feel that it is all one and the same, but I’m telling you, it’s really not.  Having one account to do everything means a few things: one:  you won’t separate the business from your personal life in your head or physically, which leads to mistakes, overspend, lack of control over your budget and a massive lack of clarity over your activity which leads into two:  your accountant will need to sort through all of your bank account transactions which is going to take time, lead to lots of queries, and hugely increase the risk making a mistake…and a bonus one:  you’ll probably pay more in fees because of all the extra work your accountant has to do to sort it out.  In short, it’s a big old mess having one bank account.

    Secondly, sloppy bookkeeping.  I get it, you’re busy doing work, and the reason you’ve employed a bookkeeper is to take something off your plate so you don’t need to worry about it, AND after all, they are a trained professional so they should be getting it right, right?  I have a couple of issues with both of these arguments.

    My first issue:  yes you hire a bookkeeper to take something off your plate and yes, they are a professional so they should know what they’re doing.  But let’s just take a step back and think about what you’re actually doing when you hire a bookkeeper.  You are outsourcing a part of the finance function of your business.  All businesses have a finance function, no matter what size they are, it’s the part of the business which deals with all your banking, paying bills, invoicing, bank reconciliations…basically anything that deals with the money side of your business.  So, when you start thinking of your bookkeeper as part of your finance function, it is easier to understand that even though they are a professional, they are in effect an employee.  Would you ever let an employee go about doing their work without so much as glancing at it.  Hell no! 

    2. Make sure you are using the small business tax concessions.

      A lot of this comes down to great communication with your accountant.  How do you have great communication with your accountant?  Meet with them regularly.  I would always recommend at least quarterly, if you’re a larger small business or you have a high volume of transactions you might consider meeting with them monthly.  This gives them an opportunity to go through the numbers with you but also to make sure that any new transactions you are considering will be structured in such a way that you can access things like the small business tax concessions.

      What are the small business tax concessions?  They are concessions introduced by the ATO to help small businesses both manage the tax compliance burden and help them to grow by giving them certain tax concessions.  For example, they include some simplified rules around depreciation, simplified rules relating to trading stock or the immediate deduction of certain assets.

      3. Use the instant asset write-off

      The instant asset write-off has been around for a number of years now and for the uninitiated it is basically, the immediate write-off via deprecation, of fixed assets up to a certain amount.  The Government has changed the maximum threshold of the instant asset write-off regularly and generally speaking, it’s in response to the performance of the broader economy.  As at the time of recording, the cap on price of assets eligible for the instant asset write-off for the 2024 financial year is $20,000.  What does that mean, it means if you purchase a fixed asset valued at $20,000 or less, you can take an immediate deduction of that amount. 

      4. Review your business structure

      Yes, you can change your business structure.  It’s not a “set and forget” thing.  This means, if your business structure isn’t working for you anymore, you can change it so it becomes fit-for-purpose.  For example, many businesses start out as sole traders because it’s simple, quick and cheap to set up.  The problem with a sole trader structure is that the tax rate is your personal marginal tax rate so as the business grows, so too does your tax bill and even worse, the tax rate itself goes up.  Let’s compare:  as a sole trader, a profit of $80,000 is taxed at 30% plus 2% Medicare Levy so total 32% for the year compared to a company which is taxed at 25%, you can see immediately there is a 7% tax saving.  As a note, these tax rates are current at the time of recording, so you may need to check the rates have not changed if you are watching this at a later date.  Not sure how to do that?  Easy, talk to your accountant.

      And if you are interested in knowing more about business structures in Australia, I have a video which goes into more detail and I shall leave a link for you to watch it next.

      5. Pay superannuation contributions   

      When you go into business for yourself, you need to take on responsibility for paying yourself superannuation contributions which is obviously something your employer used to do for you.  The great news is that contributions into superannuation are tax deductible for the business.  A couple of things to remember, as at the date of recording:  the cap for superannuation contributions is $27,500 and: for contributions to be tax deductible, they have to be made before 30 June.

      6. Keep accurate records

      I feel like I waxed lyrical about this when we were talking about making the most of your tax deductions, but it is the cornerstone of your business.  As someone once said to me, “you pay peanuts, you get monkeys”.  It’s true in every industry but especially so in the accounting and tax industry.  Going for the cheapest option isn’t always going to pay off so, going to your friend to have them do the bookkeeping because they happen to know a little about Xero, may not pay off in the long run.

      7. Keep on top of your debtors and creditors

      There’s a bit of a trick to this one because it isn’t just about keeping on top of your debtors and creditors.  But that doesn’t mean you shouldn’t be keeping on top of your debtors and creditors! 

      So, in terms of paying tax what you want to be doing is making sure that any big invoices you send out around the end of the financial year are not paid until the following financial year – make sense?  This is because you shift the taxing point from this financial year, to next financial year, and that my friends, saves you money.

      With creditors, you want to be making sure that as many bills as possible are paid in this financial year because you only take a tax deduction when you actually pay them so in paying them in this financial year, you move the tax deduction forward, lower your profit and again, save yourself some money.

      Make sense?  This segways nicely into our next tip, gosh we’re skimming through these now!

      8. Prepay expenses.

      So again, by prepaying expenses we’re bringing the taxing point forwards.  This means that if you usually pay for something over a 12 month period, by paying the full amount in the current month, say June, you actually get to take a tax deduction for the full amount, not just one month.  Interest and insurance are key examples of the prepayment of expenses.

      9. Get professional help

      Now, I say this not because I am a professional but because you my friend, as a business owner can’t be expected to do everything.  That is what leads to stress, overwork and ultimately, burnout.  Yes you have to pay for professionals, and the good ones can come with eye-watering bills, but here are a few essential professionals you should have as part of your tribe:  accountant/bookkeeper, lawyer, financial planner and an admin person or VA.  See, that’s not too many is it?!  Every single successful business has these four professional streams in some form in their business and together they are what helps the business to be successful.  Each one has their own strengths and skillset to help you in each different area of your business.  I’m not suggesting you have them all on the payroll, but having someone on the end of the phone to help when you have a query or a problem can go an awfully long way.

      And, last one!

      10. Invest in training and development

        This is both for yourself and members of your team and should not be underestimated. Not only are the costs tax deductible (thereby saving you more dollars!), but the knowledge that you gain will also help to save you money in the future.  And I’m not necessarily talking about the technical skills you need to have to be good at what you do, as a business owner you also need to be across marketing, personal branding, public speaking, managing, leading….the list goes on.  So investing in yourself and investing in your knowledge really goes a long way towards saving you money in the literal sense through deductions, but also in lost time and resources (and overspend where you spend money on things you need but it turns out, you don’t really need).

        So there you go, 10 ways to save tax in your small business here in Australia, reach out via the comments section below if you have any questions or want to reach out to understand more about any of these, or talk to your accountant, otherwise, best of luck on you small business journey and I’ll see you again soon.  Bye for now.

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