Tax planning is legal when you do it within the intent of the law.  However, the Australian Taxation Office (‘ATO’) imposes harsh penalties for those businesses that undertake tax minimisation schemes outside the spirit of the law.  The ATO refers to these schemes as tax avoidance schemes or arrangements.

Australians have seen significant changes in Australian legislation for small businesses from JobKeeper to the extension of the instant asset write-off.

Australian companies will also experience a new corporate tax rate for the 2021 financial year reducing from 26% to 27.5%.  The corporate tax rate eligibility remains unchanged and still applies to base rate entity companies with an aggregated turnover of less than $50 million.

The small business income tax offset has been increased to 13% up from 8%.  The tax offset is a 13% discount of the income tax payable on the business income received from a small business entity (other than a company) with an aggregated turnover of less than $5 million, up to a maximum of $1,000 a year.

By developing clear forecasting, it can assist in reducing any stress and unexpected surprises.  With updated tax incentives rolled out there are more opportunities for businesses to take advantage to minimise taxes.

Cash flow reporting is a great way to maintain a healthy cash flow and it is a good way to tell if your budget is working well.  An overall budget to determine your cashflow for the next 6 months, per quarter or per year can help show you if your income has increased during each month and where you can work better on spending less.  It can put emphasis on the expenses that are overdrawn and it can help minimise cash being spent on items that are not being used.  Cash flow reporting and budgeting is a very important step in growing your business.

Before investing more money in to your business you need to see if your business cashflow can support your loan repayments or any debits that you owe.  Having a budget can show you if you are able to invest to be able to grow your business.

In October of 2020 there was an immediate tax relief for personal tax rate cuts that were brought forward 2 years and backdated to 1 July 2020.  We should see the backdated tax brackets receiving the difference in their upcoming income tax return with many Australian’s either having a lower estimated tax payable or an estimate higher tax refund.

For business clients, now is the time to organise a tax optimisation meeting to estimate their potential tax liability and what can be done to prepare for it.  Those businesses who do not go through this process typically rely on outdated prior year amounts and are unable to adequately budget for their upcoming tax liability (if any).  A tax optimisation meeting with a tax professional can provide valuable insight into where the business is at currently and what opportunities are available in the future.

It’s important to note that even tax professionals don’t possess a crystal ball and sometimes real life doesn’t turn out quite the way the forecast predicts (the weather is a case in point for this!), at the end of the day, if the estimates do not work out there is a clearer idea of where the business is headed.  A business who budgets, is one which is prepared and able to quickly and efficiently deal with unexpected events as they occur.

If you are interested in understanding how tax optimisation  or any other business planning may help you identify opportunities in your business, we would be pleased to talk to you.

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