Tips on Small Business Tax
Small Business Tax can seem like a foreign language, especially when there are so many grey areas. That is why Chris Morris, our Business Development and structuring Specialist, has provided a general list of small business tax do’s and don’ts.
DO – Begin with the end in mind.
To determine the right structure for your business it is important to understand where you’re heading and what you’re ultimately wanting to achieve. Whilst it is often beneficial to move quickly in business, it can be extremely costly if you get your initial structure wrong. Having the right structure at the outset can allow your business to grow and achieve its goals, whilst providing asset protection and tax minimisation for your owners. In many cases, the right structure at the start can save hundreds of thousands of dollars in tax. This is why it’s crucial to properly understand your end goals before you set out to achieve them.
DON’T – Fall into the trap of using cash provisions for operations and not replenishing them.
Amounts relating to superannuation, income tax and employee PAYG withholding are often used in a business’s day to day operations, and there is nothing wrong with this! Although, when it comes time to pay these amounts, owners can sometimes find themselves in a position where they don’t have the funds available to make these payments. Over time, this can snowball to the point where there are many periods that need to be paid. Without payment, this can attract general interest charges as well as other penalties and potentially have devastating effects on your business and the directors personally.
DO – Forecast your business position into the future.
Tax is based on profit. Therefore, to predict your tax payable, you should have a detailed profit & loss forecast. This is then used to form a balance sheet forecast and subsequent cash flow forecast. These financial reports are important for understanding your future position as well as identifying any key issues before they eventuate. Unplanned payments can kill a business’s cash flow and significantly hinder growth. In addition to creating forecast reports, successful businesses are continuously revisiting and updating these as required.
DON’T – Be afraid to ask for help.
Successful business owners are constantly asking questions and seeking to understand. They understand the need for collaboration and use specialist advisors regularly as permanent partners to their business.
DO – Ensure you’re taking advantage of tax concessions.
At Advivo we are fluent in tax and understand the workings of all small business tax concessions and Research & Development (R&D) tax concessions. If you’re unsure of whether your activities constitute R&D, or whether it would be worthwhile registering your business for the R&D concessions, just give us a call as this could save you thousands of dollars in tax savings if applicable.
DON’T – Buy a motor vehicle to save on tax.
I often get asked if people should buy a new vehicle before 30 June to save on tax. My answer is, “To save on tax? No. Because it makes economic sense? Yes”. When deciding to purchase a vehicle consider the following:
- Do you need a new vehicle? Weigh up the pros and cons including the age of the current fleet and anticipated future outlays on the existing vehicle(s) vs. new vehicle(s) cost and ongoing maintenance.
- What will be the effect on your cash flow? If you’re trading old for new, understand any additional cash outlays vs. cash savings associated with making the purchase.
- Is the vehicle you’re selling 100% written off for tax already? If yes, then the entire sale amount will be taxable income for your business.
- How will you finance the purchase (chattel mortgage vs leasing)? Chattel mortgages and leases are very different, and the choice of which financing option is best for your business can depend on many factors including cash flow, upfront GST claims, the health of your balance sheet and others.
- Which entity is best to purchase the new vehicle? Ensure you’re purchasing the vehicle in the correct entity. Your trading entity may not be the correct entity so it’s important you understand your structure and the reasons for it.
DO – Let your business stand on its own two feet.
We’ve all heard the saying ‘throwing good money after bad’. Businesses need operating capital to achieve their goals, but if you find you need to continuously tip cash into your business for it to survive, you may have underlying issues to address. Fix what isn’t working or make the tough decision to stop doing it. Likewise, your business isn’t your personal ATM. Keep your personal expenses separate. ‘Clean’ financial statements that aren’t polluted by personal expenses will help provide clarity on how your business is performing and can help provide a clear picture to stakeholders.
And finally…
Ultimately, everyone’s circumstances are different, and whilst there is no ‘one size that fits all’ approach, the above is applicable in most situations.
If you have any further questions, please don’t hesitate to contact us now on 07 3226 1800 or use our contact form.
