Updated: Jun 5, 2022
✦ As June rolls around once more - and with it the end-of-financial-year chaos - I want to share with you 10 tips to both reduce the stress and maximise your returns.
When you’ve been a Chartered Accountant and Business Advisor for as long as I have, you can sense the tension in the air when June 30 looms large on the horizon.
So if you’re dreading the coming month and all the numbers and brainwork you’re in for, I have 10 ways to kick that overwhelm to the curb and get your head in the game for this final stretch of FY2021-2022.
1. There is no Tax Time
Woah, what? That might be a weird one straight out of the gate, but this one always stops my clients in their tracks. Much like 'super foods' and 'anti-aging', 'tax time' is not an actual industry term. It's a marketing term.
But much like the examples above, it's had a dangerous impact on the 'thing' which it refers to. There is no specific 'time' to be thinking about tax. We should be considering smart tax minimisation options as part of our regular 'sit-down' with our numbers.
As frequently as doing wages, paying invoices, checking the account or placing orders, so too should we be 'checking in' on our tax and keeping opportunities to save or spend wisely top-of-mind.
2. Tax is not the same as your car rego. It's not a bill due every year.
Another head-space shift I need you to make - stop thinking about your tax as a bill. Tax is not an annual subscription to the ATO.
If you want to maximise the opportunities that the taxation system presents to your business, you need to stop treating it like a bill you have zero control over that just turns up unannounced throughout the year.
Similarly to the above, this can be one of the single biggest shifts in how you think about tax that can open your eyes to its true potential. How often do you think about wages? Balancing Xero or MYOB? Paying your suppliers?
Awareness of the way tax works means there can be all sorts of opportunities such as varying your tax instalments when things change. Even the idea of getting a refund needs to be revisited - do you want the ATO to have your spare money so you get a refund? Or is it better to keep a closer eye on the details and give them the appropriate amount each quarter?
3. Tax Avoidance is NOT the same as Tax Evasion.
"Whilst tax evasion is illegal, tax avoidance is not. Tax evasion is the illegal practice of not paying taxes by not paying the taxes owed; reporting taxes that are not allowed legally; and not reporting income. It can apply to employment taxes, sales taxes, and income taxes.
On the other hand, tax avoidance is a legitimate way of minimising taxes through methods indicated in the tax law. Businesses can avoid taxes by availing of all legal deductions and by sheltering income from tax payments through other legitimate means." (thanks to @fclawyers for this well-worded explanation).
Too many business owners leave opportunities on the table by flinching at the term 'Tax Minimisation’'. In the immortal words of Kerry Packer: “of course I am minimising my tax… as a government, you’re not spending it that well that we should be donating extra.” Food for thought, right?
4. Tax Avoidance does not make you a bad person.
“I’m a good, tax-paying citizen.”
How many times have you heard yourself saying this? Culturally we have connected the idea of being a good person with the notion of paying tax. So when the opportunity to minimise tax is tabled, as I mentioned in #3 we get all flinchy and cringy.
You can AVOID tax and still be a fine, upstanding member of society. I see business owners falling into three distinct categories when it comes to their taxation philosophy: those that want to pay none at all, those who don’t want to pay a cent more than they have to and those that see tax as a moral obligation. Which makes the most sense to your business?
5. Want more out of EOFY? Bring more to the table.
A discussion with one of my clients about tax opportunities available to them turned into a series of notes she took with her to her tax agent. The agent’s response:
“We WISH all our clients were this well educated about tax!”
When you’re bringing greater thirst for knowledge to the table, the conversations can progress that much further into a potential future for you. Going into the room armed with a sense of informed curiosity signals to your accountant that you’re ready to kick things up a notch - that you're ready to graduate out of grasshopper status.
(Oh and PS: those notes I gave my client? They created a lifetime tax saving of $150k - BOOYAH💪)
6. Sole Trader? The time to become a company could be NOW!
For many of my smaller business owners (and often, not-so-small business owners!) the idea of shifting from Sole Trader to Company structure can seem like a decision for waaay down the track when your turnover is much higher.
In reality, if you’re making a profit of over $120k per year, the amount of tax you could be paying as a company, as opposed to a sole trader, could be MUCH lower.
There can even be benefits of a company if you expect to make losses for a few years before turning a big profit! But without an in depth conversation about your business plans, no accountant/tax agent can get you the right setup.
7. The Taxation system was designed to help you succeed (believe it or not!)
Claiming business expenses on tax is a system designed to encourage you to INVEST in your business (not just leave the money sitting in the bank). So rather than accruing profits in your business bank account and being taxed heavily on them, there are a range of ways you can put that money to work back in your business. This links in closely with the previous #6, in ensuring you’re set up as the entity that suits where you are now and where you’re heading with your business.
The benefits of this are twofold - less of your profits are paid in tax AND your business can grow!
8. Your Tax Plan should look very similar to your business plan.
Do you have a strategy for your business for the next month, quarter, year or 5 years? If that’s the case, you should have a plan for minimising your tax that runs right alongside.
Think about it: we pay tax over the course of our lifetime. So your plan for it should be connected and flow year on year, building on the strategies of the previous year. This headspace shift sits right alongside #1 & #2 - it’s time to start thinking about tax in the context of the bigger picture in our lives.
9. Your Superannuation Plan is ideally a component of your Tax Plan.
Another juicy topic that business owners either shy away from, or only tentatively dip their toes in, a Super plan presents a golden opportunity to minimise tax today whilst also solidifying our plans for tomorrow.
Regardless of the business that you’re in, you don’t plan to drop dead mid-invoice, do you? Of course not! We built these businesses to set us free and facilitate a better life! So thinking about smart super strategies and investing in the next chapter have flow on effects to tax avoidance. (And if you cringed just then, go back and read #3 & #4 until you get it out of your system).
We buy houses, cars and investments knowing these things will come to fruition in the future. So apply that same vision to both your super and your tax planning.
It’s true that you can’t access your super until you are older. Let’s face it though: ideally the retirement chapter of your story lasts at least 25 years, so when do you START saving your surplus funds in what’s effectively the “OnShore Legal Tax Haven” that is Australian Superannuation, if not now?
Did you know that under current tax law, the earnings of that nest egg (whether in a Self-Managed or other Superannuation fund) are not taxed at all once you get to “pension phase”? Actually that’s why financial planners understand that it’s worth getting as much as you can into that zone!
10. There is an easy way to put all this into practice.
Shameless plug alert (but hey, tax is smack bang in my zone of genius). The truth is that I love tax planning with my clients because it’s a process full of pleasant surprises, exciting opportunities and aha! moments. Once you realise that a tax plan can make bigger things possible, we’ll no longer carry this sense of dread into June. Heck, we might even start celebrating instead!
If you’re curious about what a tax plan might look like in your business, I’m offering 1:1 Tax Strategy sessions over on my website now. I can’t wait to dive in with you.
Disclaimer: These are yuck and boring but unfortunately a legal requirement for professionals in my industry. So just a reminder, the information contained here is general in nature and you should seek financial and business advice tailored to your own personal circumstances. Which, by no small coincidence, I can help you out with. Head over to my website and book a free 30 minute chat with me: https://betterbusinessdecisions.com.au/
Liz Jarvis BEc CA
Better Business Decisions
Youtube Channel: https://www.youtube.com/channel/UCd_7znD53DbzVfmLoFPVZWQ
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