Every year, on July 1, millions of businesses in Australia miss out on keeping what is rightfully theirs - their hard-earned profits. Unfortunately, they give up a portion of their profits to the Government by paying more tax than they legally should.
In 1991, in front of a Federal Inquiry the late (and great) Kerry Packer proudly said “I am minimising my tax and if anybody in this country doesn't minimise their tax, they want their heads read...”
If one of the richest men in Australia of his time said that, then you’d be (crazy) to do otherwise. And if you’re wondering how, well stop wondering because I’ve put together a little list of the legal ‘tax-minimisers’ to share with you.
Pay your employee super before 30 June
If you have employees, you’re required to pay 9.5% of their gross wage to a superfund of their choice, no later than 28 days after each quarter. However, these payments are only tax deductible to your business when they are made. By making contributions before 30 June (actually the 28th this year because the 30th is a Sunday) you’ll bring forward your tax deduction into this financial year and save more tax.
Write off bad debts
It sucks when you don’t get paid by customers. What sucks more are the tax rules around writing off ‘bad’ debts after the financial year in which they occurred. Review your Receivables and write-off anything that appears to be ‘bad’ before 30 June.
Is your turnover less than $10million? Do you need a new car, laptop, or 80 inch ‘monitor’? Yes! Yes! Take advantage of the Instant Asset Write off Allowance to reduce your taxable income by up to $30,000 per single asset. Note that this threshold applies to a single asset costing less than $29,999.99 excluding GST. Special rules apply when buying on finance/credit and you may not have to pay any cash immediately but still get the deduction.
Keep stock levels down
You essentially pay tax on any unsold stock you still hold at 30 June. Keep your stock levels to the lowest you can by running regular stock takes - and one on or close to 30 June - valuing stock down to what you can sell it for (if lower than cost) and removing obsolete/damaged stock.
Supersize your Super
The Government allows you to contribute up to $25,000 per year and claim a tax deduction for it. I can’t tell you if this is a good or bad strategy for you because I don’t know you, but there’s something special about being able to get a deduction for paying money to yourself.
Prepay Rent, Insurance and Annual fees
Know of any upcoming policies or bills that normally get paid in July? Call up your suppliers and get them to issue the invoice earlier. They’ll be glad to get your money early and you’ll get an earlier deduction. Rent can be paid by up to 12 months in advance if you feel like showing your landlord some love.
There’s one thing to note about this list (and there’s plenty more where that came from) - by doing some or all of the above, you’re not only saving tax by reducing your taxable income, you’re improving and reinvesting back into your business and personal wealth. Wouldn’t you rather that over giving the money to the Government for no real benefit?
You too can be like Kerry (well sort of)! The difference might be that Kerry had a lot of cash to spend on legally minimising his taxes. Having a tax problem is not a bad thing. But make sure you’re saving tax and keep an eye on your cash flow.
Remember to focus on profits first before you start minimising tax. The worst thing you would want to do is swap a tax problem with a cash flow problem. And your accountant should be leading the charge with tax planning. If they’re too busy to help or make suggestions, you may be missing out on some serious annual savings.
**Please note the above is general advice only. You should seek specific advice which takes into account your circumstances and needs. Speak to your tax adviser, or email me here to schedule in a time to meet.