Tax Planning Benefits & Considerations
Tax planning is like using a tractor instead of a shovel … it’s a more efficient and effective way of doing things, offering better results.
It might not be the most exciting thing in the world; however, it is an important aspect of financial management.
By taking a proactive approach to tax planning, you can avoid nasty surprises, optimise your tax position, and maximise your financial outcomes.
It’s all about a strategy that lets you keep more of your hard-earned cash, or make it work to improve your business.
You want to make smart moves that reduce your tax liability, while staying within the rules.
However, tax planning isn’t just about minimising your tax liability, it’s also about making smart financial decisions that benefit your future.
This means reviewing your financial situation regularly and identifying opportunities to maximising deductions, contributing to superannuation, and taking advantage of available tax concessions, particularly those specifically for farmers and small business.
Use tax planning to your advantage. Minimise liabilities and maximise income with tips that may be useful for farmers, small businesses, and individuals:
1. Claim all eligible deductions: Make sure you claim all the deductions you are eligible for, such as work-related expenses, charitable donations, and investment expenses. Keep proper records and receipts to support your claims. Farmers are eligible for a range of Primary production concessions, including deductions for livestock purchases, fencing, and water facilities.
2. Understand tax concessions and incentives: that may be available to your business, such as the instant asset write-off and research and development tax incentives.
3. Capital gains tax (CGT) concessions: If you sell an asset such as shares or property, you may be eligible for CGT concessions to help reduce your tax liability on the capital gain. Farmers may be eligible for CGT concessions when they sell a farming asset, such as land or livestock.
4. Fuel tax credits: Farmers may be eligible for fuel tax credits for off-road fuel use. This can help reduce fuel expenses.
5. Small business tax offset: including farmers who operate as a small business
6. Stock valuation: Farmers can manage their taxable income by managing their stock levels at the end of the financial year. It’s important to value stock at the end of the financial year to ensure that taxable income is accurate.
7. Manage investments: Consider the tax implications of your investment decisions. For example, investments in certain types of assets may be more tax-efficient than others and/or earn more over time.
8. Contribute to superannuation: to reduce your taxable income and save for retirement.
9. Keep accurate records: Keep accurate records of all your business transactions, expenses, and income. This can help you remain compliant, claim all eligible deductions and reduce the risk of audit.
10. Plan your cash flow: ensure that you have enough money to pay your tax liabilities on time. Consider setting up a tax reserve account.
11. Farm Income Averaging: to manage the unpredictable nature of agricultural income, farmers can even out their income over a 5 year period, reducing impact of fluctuating income levels on tax liability, reducing tax in years when income is high.
12. Use a tax professional: A tax professional can help you identify opportunities, and ensure that you comply with all tax obligations.
Tax planning is an ongoing process, and you should review your tax planning strategies regularly to make sure they’re still effective and are taking advantage of all available opportunities.
Ensuring compliance by staying up-to-date with changes to tax laws and regulations will also help identify their impact to your tax planning strategy.
Effective tax planning requires a combination of knowledge, planning, and execution. Seeking professional advice or financial counsel from a qualified tax accountant or Rural Financial Counsellor can help ensure that you are meeting your obligations and taking advantage of all available opportunities.
STEPS TO TAKE BEFORE END OF FINANCIAL YEAR
Start the new financial year on the right foot and that you are well-prepared for any tax planning opportunities that may arise. Here are some steps you can take during April & May to plan for tax:
Review your income and deductions: to ensure that you have claimed all eligible deductions and allowances. Check your statements and receipts to ensure that your records are up-to-date.
Review your superannuation contributions: consider any changes you may need to make to maximise tax efficiency. Consider contributing to your superannuation fund to reduce your taxable income.
Make charitable donations: consider making donations before the end of the financial year if you can afford to do so.
Review your investments: review your portfolio to ensure investments are tax-efficient. Consider selling assets that have capital losses to offset any capital gains.
Review your budget: consider any changes that may impact your tax planning. Ensure that you have set aside funds to pay any expected tax liabilities.
Review your insurance coverage: ensure that you have adequate coverage to protect your assets and income.
Plan for the next financial year: set financial goals and prepare a budget. Consider the tax implications of your financial decisions and plan accordingly.
Consider any changes to tax laws and regulations: check any changes that may impact your tax strategy or situation.
Seek professional advice: if you’re unsure about any aspect of tax planning, seek advice from a tax professional. A tax professional can help you identify tax planning opportunities and ensure that you comply with all tax obligations.