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Tax Planning strategies must be implemented before 30 June… so here is a quick Q & A regarding tax planning and strategies to help you reduce your tax.
Why should I do Tax Planning?
Tax planning is essential as it provides you with the opportunity to actively seek ways to reduce your tax liability. This can be achieved by implementing tailored strategies to reduce the impact of capital gains, prepaying interest, investing in negatively geared investments, assessing your current structures and other similar proactive measures prior to 30 June. After 30 June, your accountant is simply recording history and can’t do anything proactive to help reduce tax.
Most importantly, tax planning also allows you to budget for your up-coming tax liability by estimating the amount payable early (including PAYG Instalments).
If you have ever found yourself saying…. I have had a great year this year. I wonder what my tax will be, or, I didn’t know about that tax instalment/liability, or I didn’t think my tax would be that large, or I wish I paid less tax…. then you need to consider doing Tax Planning.
When should I see my accountant to complete Tax Planning?
Any time from May to Mid-June 2024 – Ideally, your March 2024 BAS should be prepared and you are able to estimate the likely income for the remainder of the tax year. Importantly, any later than mid-June and you may not have time to implement the chosen strategies. Accordingly, if you wish to complete tax planning for the 2024 year, and haven’t already arranged a meeting with your accountant, it is now time to consider the same.
What strategies are considered?
Application of new tax legislation (or Federal Budget Announcements) and how that might impact your business/tax position.
Deferral/Timing strategies such prepaying expenses, stock valuations, deferring income, paying superannuation for employees prior to 30 June.
New investment opportunities (mostly a deferral strategy also), like investing in new business equipment (immediate write-off rules), or negatively geared investments.
Whether we need to explore more complex structuring options like “bucket companies”, Self Managed Superannuation Funds, changing structures to accommodate growth, new owners, maximise potential exemptions, loss carry back scheme for “tax loss” companies, and/or preparing a business for eventual sale.
Customising Trust Minutes to ensure income distributions go to the right place – particularly where significant changes from last year, or capital gains are involved.
Retirement based strategies including superannuation contributions.
And many more…. there are just too many possible strategies to list here, and it all depends on your unique circumstances.
How much does it cost?
That will depend on the complexity of your matters and group structure. A large percentage of our clients undertake tax planning every year…. Even if it is just so they can budget / plan for the expected tax liabilities for the next 12 months.
King & Whittle can provide a fee estimate before commencing any work. In most cases it is between $880.00 and $2,200. Complex businesses and structures can be more.
Other Common Questions/Statements about Tax Planning:
If I spend $1,000 on a deduction, that will increase my tax refund (or reduce my tax liability) by $1,000 – This is incorrect. It will only save you $1,000 multiplied by your applicable tax rate, which will typically be somewhere between 19% and 47%. So, a maximum benefit of $470 per $1,000 spent.
I want to keep my income from going into the next tax bracket so I don’t pay more tax – This is not really an accurate statement. You are taxed on your income based on “brackets” of income (referred to as Marginal Rates of tax). The Brackets are listed here. Essentially, you will be taxed $nil on the first $18,200, whether you
earn $18,000 or $1million dollars. You always pay $nil on that first $18,200. You will be taxed 19% on the income that falls into the next bracket, whether you earn $45,000 or $1million dollars. So even on the top bracket, you will end up paying 45% (plus Medicare Levy – another 2% minimum) on the income ABOVE $180,000…. not all your income. Still a large rate of tax per dollar earned over $180,000.
Should I get Private Health Insurance – This is not a simple question and should take into account your medical requirements, not just the tax consideration. Importantly, everyone pays Medicare Levy, whether you have Private Health Insurance or not. The Private Health Insurance just prevents the additional charge called “Medicare Care Levy Surcharge”, where you earn over certain amounts and don’t have appropriate hospital cover. More Information here:
https://www.ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy-surcharge/paying-the-medicare-levy-surcharge
Importantly, it is a per day test…. So, if you take out Private Health Insurance part way through the year, the Surcharge may still apply for the remainder of the year you weren’t covered.
Will purchasing more stock before year end help reduce my tax? The answer is no. Only the cost of stock “sold” before 30 June counts as a deduction. This is why you need to complete a stocktake each year.
Should I purchase a new asset in my business? This question is referring to the immediate write-off deduction. This only applies to businesses and has been significantly reduced for the 2024 year (<$20,000). Any purchase decisions should be evaluated with normal business logic – will it improve my business, generate more profit, improve efficiency so-on.
What was new in the Federal Budget? At the time of writing this article, the 2024 Federal Budget had not been handed down yet. However, there are always a few new options announced.
What new Tax Legislation applies? Too many to go through here and your accountant will discuss with you at your Tax Planning meeting what may impact you. There are some important changes that impact professional industries (lawyers, doctors, accountants, architects) and anyone operating their business/investments out of a Family Trust (new ATO interpretation of existing rules).
Should I make a voluntary superannuation contribution? Possibly. This will depend on the amount you have already contributed this year, your contribution limits, your Total Super Balance (TSB) and your current tax rates. This is something to discuss with your accountant prior to making any extra contributions. You will also need to check your eligibility to make such a contribution. Any contributions should be made no later than mid-June (check your super fund’s cut off dates) to ensure they are received by the Superannuation Fund on time (well before 30 June)
- Should I setup a Self-Managed Superannuation Fund (SMSF)? A SMSF doesn’t change your ability to claim a deduction (no extra benefit tax wise), rather it just makes it a bit easier to transfer funds and allows you more control over your superannuation investments (control and influence). Whether that is worth it is a much bigger discussion and you should contact your trusted King & Whittle for further information.
Should I be doing anything now in preparation for retirement considerations? If securing your ideal retirement is a priority for you, we invite you to explore how our experienced team can be vital in achieving your
financial goals. It is never too early. Contact our office for an introductory discussion with our Wealth Management Team. Your financial future deserves the attention and expertise.
We look forward to assisting you further and hope you consider the opportunity to speak with a King & Whittle expert. Simply call our office on 03 9602 4466 or email us on enquiries@kingandwhittle.com.au to have someone discuss your situation and organise a Tax Planning or Wealth Management appointment.
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