Tax time 2021-22: Tax Planning PART 3

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The final in this three part series looks at the big picture tax strategies and what is coming up for WA businesses in the next financial year.

Part one focused on income projection and depreciation of assets, while Part two explained temporary full expensing and superannuation strategies.

Big Picture Strategies

There are several big picture strategies that can be considered as part of the future tax planning for your business:

Take advantage of negative gearing on any investment properties

Consider longer-term investment strategies that include borrowing money to buy property, businesses and shares. Negative gearing reduces your personal taxable income. It offsets the losses made when the income received from an investment property is less than the loan repayments and maintenance costs.

Start your business exit planning

It is important to start succession planning now for how you exit your business in the future. Properly planning a future exit from the business ensures business owners receive the maximum value (after tax). Find out more on Succession planning HERE.

Review your business Structure

Long term tax planning should include a review of the business structure – and whether a business owner remains in operation as a sole trader, partnership, trust, or company (or a combination of multiple structures). All these options produce different tax results.

The choice of structure will depend on several factors, particularly the characteristics and size of the business, however, tax implications will also pay an important role in the decision.

Sole operators, Trusts and Partnerships

Operating as a sole trader means profits are taxed at a personal tax rate, which may be much higher than the company tax rate. However, potential restrictions may limit the ability for a sole trader to access company tax rates.

Partnerships can enable business owners to split the income and reduce the tax burden (for example a spousal partnership) however the personal tax rates may still be higher than those of a company operation.

Trusts can benefit in tax planning where the business is producing higher profits from low overheads (trust beneficiaries cannot claim deductions for tax losses incurred by the trust). The trustee can disperse income to the nominated beneficiaries of the trust, therefore reducing the tax burden.

A company structure may offer a lower tax rate but is often less flexible than a trust and more costly to set up and administer.

Strategic tax planning with your accountant

Work with your accountant on both short-term and long-term tax planning strategies for your business. Short-term planning looks at what you can do before 30 June to minimise your tax this financial year. See Part one and two for more information.

Next, address Long-term tax planning where you can utilise your business structure to minimise tax, and the type of investments you can make to minimise tax over the long term.

Tax Deductions for the next financial year

As part of the recent budget announcement, the government has promised $ 1.6 billion in tax relief to support small businesses to go digital and upskill their employees.

These boosts will take effect in the next financial year and are considerations for business owners when tax planning for the future.

Small Business Technology Investment Boost

Small businesses with less than $50 million annual turnover, will be able to deduct $1.20 for every $1 spent on business expenses and depreciating assets that support their digital adoption (such as portable payment devices, cyber security systems and subscriptions to cloud-based services).

The boost applies to expenditure from 29 March 2022 until 30 June 2023 but will only be able to be claimed in the 2023 income tax return. An annual cap of $100,000 of expenditure applies, so those who expect to maximise their claim will benefit from spreading their expenditure between the 2022 & 2023 financial years. Find out more HERE.

Small Business Skills & Training Boost

Small businesses with less than $50 million annual turnover, will be able to deduct $1.20 for every $1 spent on external training courses for employees provided in Australia or online by registered training organisations.

The boost applies to expenditure from 29 March 2022 until 30 June 2024 but will only be able to be claimed in the 2023 and 24 income tax returns. There is no cap on the amount of boost which can be claimed. Find out more HERE.

Find out more

Annual planning is critical for businesses and individuals who want to take control of their finances and future plan for their business. The benefits include:

• Improved cash flow
• Better reporting
• Improved goal setting and tracking
• More control over your money
• Improved decision-making

Remember, a tax strategy for your business doesn’t need to be complicated, but it should be well planned. To find out more on future tax strategies and how they apply to your business, contact the team at Elevate Accounting HERE or call us (08) 9460 1040 for an obligation free chat.