With the 3rd BAS quarter behind us now, it’s a good time to be considering your tax planning to ensure that come 30th June you have taken measures to reduce your tax burden. With three quarters of the year now behind you, you should have a fairly good idea of where your profits will be at the end of the year, and what your cash position will be, and you can also take a well informed guess at what the tax man will have his hand out for.
So now it’s time to really think about how to minimise your tax, and to also make sure that you’re getting a benefit from that spending as well – there’s no point in just spending a dollar to save 30 cents for the sake of a tax deduction.
Let’s have a look at three of the potential ways to reduce your tax without throwing money away:
• Upgrade older Equipment – if you’ve got machinery and vehicles being used in your business there’s a good chance that you’ve got one or more items that are getting a bit old – the repair bill is getting higher and the down time is getting frustrating. By upgrading the machine, you increase your depreciation pool, you’ll get the GST input tax credit, the trade in will give you additional working capital which you can use for other deductions. The new equipment can be financed 100% in most cases so the effect on cashflow is minimal and you’ll have new equipment under warranty and a reduced repair bill for the coming years. If you lease the equipment you may also be able to prepay the lease if your situation allows.
• Buy additional Equipment – If your business is growing and you are taking on more and more work, now is a good time to get in and buy the machinery required for the additional work. Prepare a forecast month by month for the coming year and work out now what new equipment will be needed, or work out what equipment will help you grow your business.
For the same reasons as those above, buying new equipment now can help lower your 2012 tax bill, and it will set you up to increase revenue for the coming year.
• Debtor Finance – traditionally only available for larger companies, we can offer debtor financing to most SME now. If you regularly have a large amount outstanding on your debtor ledger this may make it difficult for you to prepay leases or other expenses to get the tax deductions you need. A debtor finance facility will allow you to access that money owing to you which in turn will allow you to prepay some expenses. This will be especially useful for businesses using cash accounting rather than those on accrual as the funds drawn on a debtor finance facility are not brought in as income, but rather as loan funds. So you can have your cake and eat it too!
These are just three simple ways to lower your tax bill – there are many more options available to you and I always recommend that you discuss any taxation issues with your accountant to get their advice first. Spending money in your business always has to make sense on its own merit – the tax deduction should never be the primary motivation. With this in mind, look at ways to invest in growing your business, increasing productivity or improving quality and safety and then look at how to get the best deduction out of it.
The most important thing to remember is not to leave it until the last minute. Planning now can save you a lot of time, and a lot of tax.