We had a great response to our webinar last week where I outlined my Top 5 Ways To Pay Less Tax.
As I highlighted at the session, without sound advice from a savvy business advisor, many small business owners end up paying significantly more tax than they should be.
There are undoubtedly numerous ways to minimize your tax obligations and it’s important to stress that how applicable and effective they are will depend on your own individual circumstances but I believe my top five have the potential to have the biggest impact on your tax position.
So as a small business owner, which strategies have the greatest potential to impact your tax? Lets’ take them in reverse order!
5. Take advantage of small business entity concessions
If you have an annual turnover less than $2 million you may be able to access a range of tax concessions including:
Simplified depreciation: you can choose to pool most of your assets and claim one deduction for the whole pool.
Prepaid expenses: you can choose to claim an immediate deduction for prepaid expenses.
Capital Gains Tax Concessions: there are 4 concessions available including a CGT rollover where you can defer a capital gain if you sell an asset and replace or improve an existing one.
4. Utilise franking credits
Franking credits are a type of tax credit that allow Australian companies to stop the double taxation of company profits as the tax paid at a company level can be passed to a shareholder.
3. Negative gear an investment
While much has been written in the media about this, in my opinion, negative gearing is here to stay and well worth considering.
Basically, negative gearing occurs when you borrow to invest in an income-producing asset such as property or shares and the cost of borrowing exceeds the returns from that asset. The tax loss can be offset against other income earned during the year.
2. Sort your super!
If you run your own business there are a number of super incentives that you may be able to take advantage of.
Making additional superannuation contributions can be extremely tax effective. The business typically obtains an average tax deduction of 30% and the superannuation fund pays tax of 15% on the contributions, resulting in a net tax saving of 15%.
There are limits on what each person can contribute to superannuation. The rules are quite complex and you can end up paying more tax if you get it wrong so make sure you speak to your accountant before making additional payments.
1. Review your business structure
This is my top tip for potentially improving your tax position. It still surprises me how many business owners aren’t aware of the impact of having the correct structure on both their tax position and protection of their assets.
If you own a business or have an investment portfolio, structuring your affairs correctly can significantly reduce the amount of tax you pay and improve your financial position. What’s more, if you don’t operate your business in the most appropriate structure, your personal assets such as your home may be exposed to claims by creditors.
It’s always a good idea to review your current structure annually to make sure that it’s still appropriate for your situation.
As I mentioned at the beginning, to fully understand which of these tips will be relevant to your circumstances, it’s important to consult with a fully qualified accredited accountant with large firm tax expertise.
The full webinar recording can be accessed here. In addition, we have created an eBook which includes further detail on my Top 5 Ways To Pay Less Tax plus some additional tax saving tips.
If you would like further advice on tax saving tips for small business, don’t hesitate to give me a call on 07 3391 1188.