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Think About Tax Planning Well in Advance of Financial Year End by tax cooloola
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Think About Tax Planning Well in Advance of Financial Year End |
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Business
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Even though we are still some months away from the end of the financial year, this is an excellent time to start thinking about tax planning. There are a number of legitimate measures a business can take to reduce the effect of taxation on their profit, but most of them require action at a much earlier point than the last week in June. Using tax planning as a deliberate strategy requires identifying some long-term goals and benefits with your Brisbane Accountant, and arranging allowable deductions and other measures to suit. Consolidation Could Assist Some Companies In the case of a business with a number of different companies, consider, for example, consolidating for tax purposes before the financial year end. At the outset there are efficiencies that will reduce costs before the tax advantages are even considered. With the head company preparing and lodging one tax return on behalf of all the groups it reduces the time and work involved by the relevant staff in each group. Paying PAYG tax for each group also becomes the responsibility of the head company, again requiring only one source to prepare and lodge the return. Some of the tax advantages of having the groups treated as one entity include the ability to transfer assets around the group without any effect on capital gains tax. Since cash is also an asset, it too can be transferred around the group without any affect on tax. Also, resetting tax costs for various group assets may result in decreased depreciation. Pay Attention to Loan Agreements Under Division 7A there are strict rules that apply to drawing private funds from a person’s own company. Loans or advances made to company shareholders are deemed to be unfranked dividends unless there are loan agreements in place before the financial year end. These loan agreements must be made under commercial lending interest rates and there must be minimum capital repayments each year. Ensure then, to avoid triggering a tax liability, that loans taken out in the preceding financial year are covered by a Division 7A loan agreement by the time the company tax return is lodged. If there are loans under agreement outstanding from previous financial years, ensure the minimum payments are made by the financial year end. If this is not the case, then it may be necessary to look at dividends or pay undrawn director’s fees. These are all complex matters that take some time to put in place. This is why tax planning must be looked at as a long-range strategy and undertaken well in advance of the financial year end. Trying to rush these arrangements through at the last minute could lead to costly mistakes that attract tax penalties. Click here.
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