Most businesses make the mistake of only consulting their accountants when they need help to meet their compliance needs. There is no question that it is important to fulfil your tax obligations. However, it is necessary to recognise that simply satisfying legislative requirements will not get you closer to achieving your business goals.
Your accountant can provide valuable insight into your organisational structures and commercial environment to guide your strategic direction in addition to supporting your planning and implementation processes. If you are a business operator, there is no better time than now to discuss tax optimisation strategies with your accountant. With only one quarter to go before the 2016 financial year ends, your actions (or inactions) up until 30 June 2016 could significantly affect your year-end tax bill.
Consider a few critical issues and common examples which can be easily prevented with sufficient planning and early preparation:
- Division 7A
Owners of small, private family-owned and –operated companies often take loans from their companies, not realising that this could trigger Division 7A issues as the ATO may view these loans as tax free distributions of profits and treat these as deemed dividends. Unless these issues are addressed in advance, there may be unwanted tax consequences.
- Insufficient cash flow
Business operators that are unfamiliar with accounting concepts may not understand how accruals accounting and cash accounting could have an impact on their taxes and may be shocked to learn that they are being taxed on some revenue that they have not even received from their debtors yet. Lacking the foresight of an estimated tax amount, available cash reserves may be spent on optional expenses and taxpayers are left struggling to pay their tax debt.
- Disadvantageous trust distributions
Trust distribution resolutions need to be prepared by the 30th of June each year. Without a clear idea of the beneficiaries’ tax positions, decisions on trust distributions could be made arbitrarily and result in the taxpayer having a higher tax liability than otherwise.
Working closely together with your accountant to do a reliable tax forecast and develop a healthy cash flow budget is a good start. Rather than having a retrospective snapshot of your financials (when it is usually too late to do much to remedy any serious problems), forecasts enable you to identify opportunities to minimise tax and discover potential problems you may not have previously considered.
If you are keen to plan ahead for your tax outcome as well as avoid any unpleasant surprises after the financial year is over, please contact the business advisory professionals at Acute Business Services on (08) 9367 7023.