2019 year end tax planning: A quick guide
Article by Robyn Tyler
Why is year end tax planning important?
Tax planning (also known as a pre-year-end review) helps you minimise the tax liability of your business.
While paying tax isn’t a bad thing – if you’re not making a profit, you won’t pay any tax – most people like to save on tax and want to see their business working to its fullest potential.
We see a lot of business owners bogged down in the day-to-day aspects of working in their business, rather than on their business. As tax planning has to be completed by 30 June each year, it’s a fantastic annual opportunity to step back and look at the bigger picture.
What to consider in your year end tax planning
When we help our clients with their tax planning, we:
- reflect on how the business is performing
- plan how to best manage potential tax liabilities and obligations
- consider cash flow.
During this process, we ask questions such as:
- Is there a business plan, and how is the business performing against the plan?
- If the business isn’t performing as expected, why not? What steps need to be taken to turn things around?
- What does the tax position look like at 30 June, based on year-to-date figures plus your projections to June?
- What can be done between now and 30 June to legitimately minimise tax, while moving towards your long-term goals?
- What tax is likely to be payable and when will it be due?
- Are there any technical tax matters that need to be dealt with, such as Division 7A loan repayments, dividends to be declared or trust profit resolutions?
This is also a perfect time to start planning for the 2020 financial year – considering matters like the strategic plan for the business, budgets and key performance indicators for the team.
What you need to know about saving tax
If you operate your business from a company, the 2019 tax rate will be 27.5% if business turnover is less than $50m.
So, what are the nitty gritty things to consider in order to save tax?
The most important thing to remember is that there is no point in spending money to get a tax deduction, unless it’s going to result in something useful for the business or for you.
If you are an employer, superannuation is deductible in the year the contributions are received by the superannuation fund. If possible, pay your team’s superannuation prior to 30 June to ensure the business receives the tax deduction this year. Employers should also be aware a number of industry funds may close superannuation contributions prior to 30 June.
Contributions can also be made by employees and receive a tax deduction. Employees are now able to make super contributions of up to $25,000 – this amount is inclusive of any contributions made by the employer. You will need to ensure you complete and keep the relevant documentation to be able to claim a deduction in your personal tax return.
When purchasing new assets to access the instant asset write-off, there are a number of dates and thresholds to consider now:
|Date of acquisition and installation||Asset value||Business turnover threshold|
|Before 29 January 2019||$20,000||Less than $10m|
|Between 29 January and 2 April 2019||$25,000||Less than $10m|
|Between 2 April and 1 July 2020||$30,000||Less than $50m|
Remember: a business should only buy assets that it can afford and that will be used.
All businesses should review their debtors list prior to 30 June 2019. Any debts that are not able to be recovered should be written off.
Stock on hand
Businesses that own stock should ensure a stocktake is completed at 30 June. Stock can be valued at cost, market value or replacement value – whichever is lower. The different valuations can make a significant difference.
Consider bringing forward expenditure. Depending on cashflow, you may choose to bring costs forward into the 2019 year to reduce tax payable. This may include repairs to equipment, stationery or marketing orders, or outlays for work travel.
Want to know more about what your business should do before 30 June? It’s best to start your year end tax planning early, so all options can be carefully considered. Get in touch with our team today.