Tax planning-where are the real benefits

Tax planning-where are the real benefits

As ATO and the government continue to tighten the tax rules, Tax planning becomes an imperative. Now that is close to financial year end some issues should be examined in the light of performance of the last 11 months.

Clever Tax planning is a continuous exercise and not just at year end. This helps manage tax affairs and respond to tax law & administrative changes by ATO.

Some tax planning only creates timing benefits rather than real savings. So the question is; what delivers real results?

The majority of tax planning falls into one of three categories ‐ health and hygiene decisions that every business should review each year, timing benefits, and permanent savings.

The timing benefits do exactly that. They create tax savings that should ultimately materialise over the life of the business but they bring them forward.

Typically, these are triggered by either deferring income or by bringing forward expenditure. This income or expenditure would have fallen in a later year causing the tax impact to also fall into that later year. Your actions change that and bring the tax benefit into the current year.

As a simple example, declaring bonuses prior to the end of June 30. The declaration of the bonus prior to June 30 means that your company is committed and liable to the payment of the bonus, albeit that payment will not be made until after June 30. In this case you are able to take up the deduction in the 2011 year whereas if you did not declare the bonus and simply pay it in say July 2011 then the tax deduction would fall into the 2012 year.

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