With the end of another financial year just around the corner, SME business owners should be planning how to minimise their tax bill. Here, 25-year business accounting veteran Grant Field explains 12 ways to do just that.
1. Minimising Capital Gains Tax (CGT)
If you’ve made a capital gain in the current year there are things you can do to potentially minimise the tax on that gain. For example, if you’ve also got another investment that has an unrealised loss, consider selling that investment to offset the capital loss against your capital gain. Capital losses can only be offset against capital gains, so there is no use paying tax on a capital gain this year only to have a capital loss next year that might never be used. Subject to your circumstances, there may also be the opportunity for you to make deductible personal super contributions to reduce this tax.
2. Taking advantage of losses
Many people think that year end tax time is about minimising the tax we have to pay, but it is also about maximising the refunds to which we may be entitled. For example, if you happen to have a loss this year, don’t just accept it. There may be ways for you to take advantage of this loss by paying a dividend from your company, which not only absorbs the loss, but also allows you to get a large refund by using the dividend imputation credits for the tax paid by the company.
An oldie but a goodie…and usually a no-brainer. You pay only 15 per cent tax on contributions into your super fund. If your taxable income is over $18,200 you pay 19 per cent tax. If it’s over $37,000 you pay 32.5 per cent and even higher (up to 45 per cent) if you earn more. So saving 30 per cent or even 15 per cent on your contributions adds up. For the current year, taxpayers can put a maximum concessional (deductible) contribution of $25,000 into super. For those aged 59 or over on June 30, this limit increases to $35,000.
For a typical ‘mum and dad’ business owner, the tax savings can be as high as $21,000. But make sure your fund receives your contributions before June 30; it’s a good idea to submit them at least a week in advance to allow for processing delays. But it’s not just about saving tax now; it’s also about the future and how much wealth you retain for future generations. Australia doesn’t have a “death tax”, but we do have a tax imposed on super fund entitlements if you die and these are transferred to children who are not financially dependent. There are ways to reduce this, particularly if you are drawing a pension and the potential tax savings are huge, so speak to your advisor now.
4. Bring forward June quarter SGC payments for your staff
Super contributions are only deductible when paid. So if you’re having a particularly good year and want to bring forward some tax deductions, then consider making the June quarter SGC payments for staff one month earlier. These would normally be due by July 28 anyway, so if you have the cash flow, consider paying these before June 30 and bring forward the tax benefit by a whole year. Depending on the size of your payroll, the tax savings could be significant.
To read this article in full, which includes eight further awesome tax tips from Grant Field, keep an eye out for the forthcoming June print issue of My Business.
Grant Field is Chairman of accounting firm MGI.
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