The end of financial year is rapidly drawing to a close. It is important at this time of year to stop and assess your financial results before the end of the financial year because you can take advantage of planning opportunities that expire on 30 June that will help you manage your taxation position for the year. And just by knowing how much tax you will have to pay and when it will need to be paid will help you to manage your cashflow better!
It’s all about timing. The fundamental rule of effective tax planning is timing your income and expenses to your best advantage. Issues that should be considered include deferral of income, the acceleration of deductions and other tax effective planning initiatives.
You may be able to defer recognition of income received before year end for services not yet performed.
In relation to derivation of income, most tax payers will not be assessed on interest, dividends or rent until it’s received (unless otherwise paid or credited on their behalf). This represents an opportunity for deferral.
There are a number of initiatives which you can employ to accelerate deductions. First, ensure that super contributions are paid by year end. Consider writing off your bad debts and bringing forward the outlay for deductible expenses. Scrap stock or equipment of nil value and review the value of stock. Also ensure that bonus obligations are incurred before year end.
You can also maximise your prepayments, subject to certain rules.
capital gains tax (cgt)
Where possible you should minimise your CGT obligations. Consider reviewing the timing of potential capital gains. Match your gains and losses where possible to avoid carrying forward a capital loss. Are you eligible to take advantage of CGT small business and retirement concessions?
While contemplating the aforementioned issues will give you a head start on your tax planning, a number of other areas should be taken into consideration. For example, have you considered the impact of private company loan rules? You may be able to avoid a deemed unfranked dividend. Have you reviewed the effective lives of depreciable assets? And finally, check whether the personal services income rules apply to you.
Estimating your taxation position now allows you plenty of time to implement action plans before 30 June rolls around. Remember, everybody is different so it is important to ensure that the strategy matches your individual needs.
Tax planning is just one step in making sure you are financially well organised. Like New Year’s Resolutions, the 30 June deadline provides a great incentive to implement some strategy. And remember, your circumstances can change in the space of a year so conducting tax planning each year will ensure you are always on top of your obligations and taking advantage of all the opportunities available to you.