It is a well known reality that when operating any kind of business, and especially in the current business climate of 2023, every cent counts.
Of course, ultimately everyone wants to maximise profits and minimse liabilities (including tax). While there are regulatory requirements and obligations that must be adhered to by every business operating in Australia, expert tax planning advice can help you to legally minimise the amount of tax that you are liable to pay and there may well be other benefits to you and your business too.
There are many different ways that tax planning can be applied, depending on your individual business and circumstances and we understand that sometimes it’s good to be able to see a “facts and figures” example in order to understand what is possible.
Disclaimer: This is the part where we mention that the following information is a general example only, used to demonstrate possible outcomes. There are a number of contributing factors that will determine individual outcomes and as such you should seek professional tax planning advice that is tailored to your situation.
Let’s take a look at an example where expert tax planning advice not only reduced the overall amount of company tax that was payable, but the business also acquired a new asset and the owner significantly increased their superannuation nest egg. Not a bad outcome!
Comparing Financial Outcomes with, and without, Expert Tax Planning Advice
For those of you who like to see the figures, here’s a simplified comparison of a standard P&L with, and without, implementing a tax planning strategy.
In this example, the business is a coffee shop that is operating via a company business structure.
The left column of figures is financial data for the 2023 financial year with no tax planning strategies in place.
In that scenario, with no tax planning advice, the company tax liability would be $17,137.
The right column shows the outcome where the client sought expert tax planning advice and a number of tax planning strategies were applied.
You’ll see 2 bolded expense figures that didn’t appear in the data on the left, $9,000 & $21,200. Let’s explain those a little further.
Understanding the Potential Benefits of Tax Planning Advice
Depreciation – utilising the temporary full expensing provision allows eligible businesses to claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose.
The coffee shop owner purchases a new coffee machine to the value of $9000 and is able to claim it as an immediate deduction. At this stage, there is no indication that temporary full expensing provision will be extended beyond 30 June 2023.
Additional Superannuation Contribution – the concessional superannuation cap is $27,500 for 2023 financial year. Topping up the director’s compulsory superannuation contribution to the full amount of the cap (compulsory contribution of $6,300 + top up of $21,200 = $27,500) significantly increases the owners superannuation balance and is a great long term strategy for retirement.
Increased Expenses Reduce Profit – both of the above strategies are additional expenses to the business which doesn’t sound like something that you would necessarily want to do, or strive for. But in fact, as you can see in this instance, additional expenses are not necessarily a bad thing.
These 2 expenses reduce the overall company profit by $30,200 ($9,000 (coffee machine) + $21,200 (additional superannuation contribution)).
The reduced profit then results in a reduction of the business’ company tax liability from $17,137 to $9,587. That’s a difference of an extra $7,550 in the business’ bank account.
From this example, you can see that expert tax planning advice not only reduced the company tax liability for the coffee shop but had other benefits for the business too – a new coffee machine and an additional superannuation contribution is definitely a step in the right direction for long term financial strategy for the owner.
Get Expert Tax Planning Advice
At The Quinn Group, our team of tax lawyers and tax accountants are experienced in preparing and executing comprehensive tax planning strategies and have achieved great results for all types of businesses. With the end of the financial year not too far away, now is the perfect time to take action. Contact us by submitting an online enquiry form or calling us on 1300 QUINNS or +61 2 9223 9166 to schedule your tax planning appointment.
