How can a business owner reduce the amount of tax being paid?

How can a business owner reduce the amount of tax being paid
Our accountants can help any business owner reduce the amount of tax they pay by making clever decisions & financial decisions. See how we do it
Outline

You can reduce the tax you pay by using an accountant

  • A tax accountant can review what tax you pay.
     
  • Accountants can help a business reduce the tax amounts being paid.
 
  • Getting a review of your business financials makes sense

Most business owners are preoccupied with four critical things;

  • How to grow their revenue each year
  • How to reduce the amount of tax being paid
  • How to improve their take home profits
  • Managing cashflow to be positive & available
 

Yes, there are many other tasks that any business owner has to think about including managing staff, local promotions or keeping an eye on competitors, but fundamentally running a business comes down to generating enough revenue to may a profit after paying tax which leaves enough cashflow to keep operating efficiently. A tax ccountant can be a vital resource for any business owner to review the financial figures and provide advice on how you can minimise the tax you pay to the ATO which can help improve profits and cashflow. The accounting team at Fitzpatrick and Robinson do this for hundreds of businesses in Sydney’s south west every year.

12 ways a business can reduce the amount of tax being paid?

Reducing the amount of tax that a business owner pays in Australia involves a combination of strategic financial planning, taking advantage of available deductions, and optimising the business’s structure. While it’s important to consult with a qualified tax advisor to tailor strategies to your specific situation, here are some effective ways to minimise your business tax liability in Australia:

1. Claim All Eligible Deductions: Ensure you claim all eligible business deductions. This includes expenses that are directly related to your business operations, such as rent, employee wages, utilities, marketing costs, and more.

2. Utilise Small Business Tax Concessions: Australia offers various tax concessions for small businesses. These include instant asset write-off, simplified trading stock rules, and capital gains tax (CGT) concessions. Stay informed about these concessions and take advantage of them.

3. Consider Tax-Effective Business Structures: Choosing the right business structure can impact your tax liability. Consult with a tax professional to determine whether operating as a sole trader, partnership, company, or trust is most tax-efficient for your business.

4. Optimise Superannuation Contributions: Maximise your superannuation (retirement) contributions. Superannuation contributions can be tax-deductible for the business and offer potential tax benefits for the owner while securing retirement savings.

5. Use Fringe Benefits Tax (FBT) Wisely: If your business provides fringe benefits to employees, understand FBT rules and consider structuring benefits in a tax-effective manner.

6. Monitor Capital Expenditure: Review your capital expenditure and consider timing big purchases to take advantage of instant asset write-off thresholds and other concessions.

7. Explore Research and Development (R&D) Incentives: If your business engages in research and development activities, you might be eligible for R&D tax incentives that can significantly reduce your tax liability.

8. Keep Accurate Records: Maintain thorough and accurate financial records. This not only helps you claim deductions but also reduces the likelihood of errors that might lead to penalties or audits.

9. Separate Personal and Business Finances: Keep personal and business finances separate to ensure that you’re claiming only legitimate business expenses and avoiding issues with the ATO.

10. Plan for Tax Deferral: If possible, defer some income to the following financial year. This strategy can help in managing your tax liability more effectively.

11. Seek Professional Advice: Engage a qualified tax advisor or accountant who specialises in business taxation. Their expertise can help you identify opportunities, navigate complex regulations, and ensure compliance with tax laws.

12. Stay Informed: Tax laws and regulations can change. Stay updated with tax updates and changes to leverage new opportunities and ensure that your tax strategies remain relevant. You can do this by following the ATO announcements on their website, going to local seminars or of course by hiring a tax accountant who can explain all of these things to you.

 

 

Remember that tax planning should align with your business’s overall financial goals and strategy. Always consult with a professional tax accountant who understands your unique circumstances before implementing any tax reduction strategies.

What business deductions can lead to the largest tax payment reductions?

In New South Wales, there are various business deductions that can help reduce the amount of tax paid by lowering the taxable income of your business. These deductions are legitimate expenses incurred in the course of running your business. It’s important to keep accurate records and consult with a tax accountant to ensure that you’re claiming deductions correctly and in compliance with tax laws. 

Here are some of the most common business deductions that we can help identify:

1. Operating Expenses: These are costs directly related to the day-to-day operations of your business. Common examples include rent, utilities, insurance, office supplies, and advertising expenses.

2. Employee Wages and Benefits: Deducting salaries, wages, superannuation contributions, and employee benefits is a common deduction for businesses with employees.

3. Home Office Expenses: If you operate a home-based business, you can claim deductions for a portion of your home-related expenses such as rent, utilities, internet, and home office equipment.

4. Motor Vehicle Expenses: Business-related vehicle expenses, such as fuel, maintenance, registration, and insurance, can be deductible. You can claim these expenses using methods like the cents-per-kilometer method or the logbook method.

5. Depreciation and Capital Allowances: Deductions can be claimed for the decline in value of your business assets (depreciation) and capital expenses. This includes equipment, machinery, vehicles, and property.

6. Travel Expenses: Business-related travel expenses, including accommodation, meals, and transport, can be deductible when you’re away from your usual place of business for work purposes.

7. Professional Fees and Memberships: Fees paid to professional associations, industry memberships, and subscriptions to business-related publications are often deductible.

8. Bad Debts: If your business is unable to collect payments owed to you, you might be able to claim a deduction for bad debts.

9. Repairs and Maintenance: Deductible expenses include costs incurred for repairing and maintaining business assets or property.

10. Interest and Finance Charges: Interest on business loans and finance charges can be deductible, provided they are used for business purposes.

11. Prepaid Expenses: Some prepaid expenses, such as insurance premiums, might be deductible over the period they relate to.

12. Professional Development: Costs associated with professional development, training courses, and workshops to enhance your skills or those of your employees are often deductible.

13. Research and Development (R&D) Costs: Expenses related to eligible research and development activities can be deductible, and you might also qualify for R&D tax incentives.

14. Meals and Entertainment: Some expenses related to business meals and entertainment can be partially deductible, but rules and limits apply.

15. Business-related Subscriptions and Licenses: Costs of licenses, permits, and subscriptions directly related to your business operations are usually deductible.

 

It’s important to note that while these are common business deductions, the eligibility and conditions for claiming them can vary based on your business type, industry, and specific circumstances. Always consult with a qualified tax accountant to ensure you’re claiming deductions correctly and optimising your tax situation within the bounds of Australian tax laws.

A lot of business owners think they understand all of these deductions but typically our accountants can find a lot of extra ones that a business owner didn’t identify. This has helped people pay less tax each year.

Financial assistance to reduce tax payments for businesses

Each year the Australian Taxation Office (ATO) will provide an outline on the various Government incentives that are available and three examples in 2023 include;

  1. The new small business boost is now available
  2. Temporary full expensing ends 30 June 2023
  3. Deduction rate changes: running a business from home and car expense rates have changed.

Typically what we find is that most business owners are not aware of the different ways a business can take advantage of these incentives or offers. This is why it is so important to use a tax accountant


1. Small business boosts now available

The boosts are available for businesses investing in digital operations, or skills and training – for example, new equipment like technology, cloud-computing, eInvoicing or cyber security. Small businesses will receive a bonus 20% tax deduction for eligible expenses in their tax return, so for every $100 spent, you’ll get a $120 tax deduction – but there are caps on the total amount that can be claimed. If you’re a small business who invested in technology or digital operations between 29 March 2022 and 30 June 2023, then this boost is for you. Likewise, the Small business skills and training boost allows businesses to claim an additional 20% tax deduction to train new and existing employees between 29 March 2022 and 30 June 2024. The training must be through a registered external training provider in Australia.

2. Temporary full expensing (TFE) ending 30 June 2023

TFE ends 30 June 2023. Businesses can still claim an immediate deduction for the cost of eligible assets first used or installed ready for use by 30 June 2023 in this year’s tax returns. However, the end of TFE on 30 June 2023 means that the cost of assets that are not already being used or installed ready to use by 30 June 2023 are not eligible for an immediate deduction under TFE in small business tax returns this year.

TFE supports businesses making capital purchases by allowing an immediate deduction for assets, rather than claiming the depreciation over a number of years. Even if you’ve paid a deposit or received an invoice, the asset must be installed ready to use by 30 June 2023. If the asset is not installed ready for use by the deadline, you may still be able to claim deductions under the general or simplified depreciation rules.

3. Deduction rate changes

Both the running a business from home deductions and car expense deductions have changed for this tax time. The key change a business claiming car expenses needs to know is:

  • The new cents per kilometre rate is 78 cents for 2022–23 but remember to keep written evidence to show how you worked out the work-related kilometres. This is method is available to sole traders and partnerships.
  • The car limit has increased to $64,741 for the 2022–23 income year.

The working from home deduction methods have also changed for this year. Businesses can choose one of two methods to claim working from home deductions: either the actual cost or fixed rate method. Only the fixed rate method is changing. However, your business structure can affect the method you can use and the expenses you can claim, especially if your business is a company or trust. If you are claiming car or working from home deductions, make sure to keep good records. This will give you more flexibility to choose the approach that gives you the best deduction at tax time.

 

As always the ATO recommends businesses seek advice from a registered tax account before making investment decisions. It is this type of well informed decision making that can be the cornerstone of growth. Many business owners get so busy running their day to day operations that they don’t have the time, or experience, to take a step back and look at this aspect of their operation so they end up paying more tax than they need to.

What concessions are available for businesses to reduce the tax they pay?

Tax concessions for businesses in Australia are special provisions within the tax system that provide various benefits to eligible businesses. These concessions are designed to support businesses, encourage investment, and stimulate economic growth. The Australian government offers several tax concessions across different areas to help businesses reduce their tax liability and enhance their financial sustainability.

Now these will change from year to year, but some examples are below to give you an idea of what they may look like. Our tax accountants can give you information on what is current or relevant right now.

 

1. Small Business Entity (SBE) Concessions:
Small businesses with an aggregated turnover of less than $10 million may be eligible for various concessions, including:

  • Instant Asset Write-Off: Allows immediate deduction of asset purchases up to a certain threshold.
  • Simplified Depreciation Rules: Simplified methods for calculating asset depreciation.
  • Simplified Trading Stock Rules: Simplified stock valuation methods.
  • Small Business Capital Gains Tax (CGT) Concessions: Provides tax relief for eligible CGT events, including discounts and exemptions.
 

2. Research and Development (R&D) Tax Incentive:
Businesses engaged in eligible R&D activities can claim tax offsets or cash refunds based on their R&D expenditure.

 

3. Export Market Development Grant (EMDG):
Provides financial assistance to businesses that export eligible goods, services, or intellectual property.

 

4. Fringe Benefits Tax (FBT) Exemptions:
Certain benefits provided to employees may be exempt from FBT, such as work-related portable electronic devices and minor benefits.

 

5. Wine Equalisation Tax (WET) Rebate: 

Provides a rebate on the WET payable on wine produced in Australia.

 

6. Goods and Services Tax (GST) Concessions:
Certain GST concessions are available for non-profit entities, charities, and small businesses.

 

7. Capital Gains Tax (CGT) Concessions: 

CGT concessions are available for small businesses, including exemptions or rollovers for certain CGT events.

 

8. Start-up Tax Concessions: 

Various concessions are available for start-up businesses, including deductions for certain professional expenses and tax offsets.

 

9. Zone Tax Offset: 

Provides tax relief to individuals and businesses operating in designated remote or isolated zones.

 

10. Superannuation Concessions: 

Businesses can claim tax deductions for superannuation contributions made for employees.

 

11. Payroll Tax Thresholds and Exemptions: 

Payroll tax thresholds vary by state and territory, and some jurisdictions offer exemptions for certain businesses.

 

12. Fuel Tax Credits: 

Businesses can claim credits for the fuel tax (excise or customs duty) included in the price of fuel used for eligible business activities.

 

13. Entrepreneurs’ Tax Offset: 

Although phased out, eligible businesses may still claim the offset if it was available in previous years.

 

These are just a few examples of the tax concessions available to businesses in Australia. It’s important to note that eligibility criteria, thresholds, and specific requirements can vary for each concession. Businesses should consult with tax accountant or refer to the Australian Taxation Office (ATO) website for detailed information and guidance on applying for and utilising these concessions effectively. Accountants help businesses navigate the fine line between aggressive tax strategies and potential audits. Their expertise ensures compliance with tax laws while minimising risk. Even if an audit or a risk review was requested by the ATO you will have the support needed to navigate any questions easily.

In summary

In today’s modern business landscape getting expert tax advice can lead to lots of savings in terms of how much income tax you pay. The rules are always changing, there are always new incentives or concessions available and it is nearly impossible for any business owner to keep up. 

Rick & Bryn
Rick & Bryn

Experienced accountants who love helping other business owners in Sydney to maximise profits, improve cash flow & grow their business.

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At Fitzpatrick and Robinson our purpose and reason for being is to help business owners make more money, pay less tax while growing in a sustainable & methodical way. We have a team of bookkeepers, accountants, tax accountants for business, a CPA, Xero accountant specialists while also providing business advisory services.

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