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.
In either case you will be eligible for the tax deduction; you simply have the ability to bring forward the timing. Doing this has no impact on the recipient of the bonus. They will only declare it in the year of receipt.
Subject to any differential tax rates that could apply to the tax saving between years, it normally makes sense to take advantage of the tax benefit at the earliest possible opportunity.
- It saves you cash,
- gives you the time value of the tax saved and
- the immediacy of the benefit creates greater certainty for you.
Where you operate through an entity structure such as a company, if you have any years where you incur tax losses for the year, those losses are quarantined in the company and you will have to wait until a future year where profits are made to recoup those losses. If your business is always profitable this is less of an issue.
However, there are plenty of businesses who have made profits in previous years but then find themselves in one or more loss years. Taking advantage of timing benefits for tax normally makes good sense.
And, there are a lot of opportunities to take advantage of those timing benefits.
Sometimes the action of one day can make the difference of a year in when the tax is paid.
Talk to us before June 30 and we can outline all of the opportunities in your business for tax timing benefits. Once you have this information, you can make the decisions on what you want to do.
Avoid delays Lodge early – Tax Refunds Sooner
Most property investors are negatively geared. This means that where they have not requested a variation of their PAYG deduction from their employer, they get refunds on lodging their tax returns at the end of the financial year.
ATO is now processing lodgement of returns very fast, particularly where there is a refund and the refund is being deposited electronically into the taxpayer’s bank account. Some refund assessments are issuing within 7 working days.
Tax Tip – To get refunds lodge your tax return soon. Property Tax Specialists can help facilitate the process and minimise time and cost with their checklists and templates. Contact Shukri on Shukri@propertytaxspecialists.com.au
Disclaimer:
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.