Managing timing and efficiency is about causing your tax liability to fall at the best time for you. Key decisions about whether you are creating a permanent benefit or simply deferring the liability are important, and while both can be valuable, permanent benefits will usually be more valuable.
So what should you consider?
The efficiency part of timing savings is about ensuring the tax paid where you can enjoy preferential tax rates. This may include:
Declaring bonuses before 30 June, though they may not be paid until after that date;
Ensuring your June quarter Superannuation Guarantee Charge payments for employees are made before 30 June;
- Prepaying some of your expenses before 30 June if you're a small business;
Committing to consumable expenses before 30 June;
Documenting trustee resolutions to distribute trust income;
- Deferring income until after 30 June if possible.
Some of these strategies revolve around deferring income to the next year and bringing expenses forward, thus the deduction falls into the current year. It's not always the right strategy however.
If you're a start-up that isn't yet generating a profit, you may not want to defer your income, because while saving tax might seem like a good idea, you also need to consider the rate of the tax saving, which may be a mix of personal and possibly company tax rates.
Timing your tax requires that you have a view about your current year position and any differential position for next financial year. If you've done your EOFY housekeeping (link) and know where you stand, it will make timing your tax significantly simpler. There are plenty of businesses who have made profits in previous years but then find themselves in one or more loss years.
Taking advantage of timing benefits for tax normally makes good sense. There are a lot of opportunities to take advantage of those timing benefits. Sometimes the action of one day can make the difference of a year in when the tax is paid.
Permanent savings can be an attractive part of tax planning, however you need to have the cash available to make those strategies work without compromising the cash flow demands of your business
or investment opportunities.
Typically permanent savings are made in the form of:
Maximising your super contributions;
- Making donations;
Tax schemes such as primary production and capital intensive high risk investments;
The key consideration is cash flow. It's important to ensure that you are not taking cash out of the business if it is required to meet its everyday demands. The more cash you have, the easier it will be to make permanent savings work for you as a tax strategy.
Call Bates Cosgrave on 02 9957 4033 before June 30 so that we can outline all of the opportunities in your business for tax timing benefits. Once you have this information, you can make the decisions on what you want to do.
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Last updated June 2013. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.