As you approach tax time, let’s have a look at some of the legitimate ways you can reduce your tax bill – and some of the dodgy ways you need to avoid.
The right way…
First and foremost, work with an accountant who is energetic and driven. One that will drill down into every aspect of your business, study and personal life to find savings and deductions that others will miss.
Once you’ve got the right accounting all in place, start by making these changes.
1. Get a mortgage offset account
You have to pay your mortgage anyway, so making use of an offset account reduces the earnings that cash would accrue in a savings account and the tax that follows on from that.
2. Make use of trusts
Store your investments in a trust. The trust itself doesn’t pay tax, only the beneficiaries do and you can direct some of the income from your trust to family members that are on lower incomes than you.
3. Salary sacrifice
Reduce your taxable income by salary sacrificing into approved expenses such as your accommodation, superannuation, vehicle and equipment costs associated with your job.
4. Review your business structure
Tax obligations vary between sole traders, partnerships, companies and trusts. Make sure your current business structure is providing you the best possible tax result.
5. Write off your bad debts
You can claim your bad debts as a tax deduction and receive a GST credit on your next BAS (if you’ve registered for GST on an accruals basis). You must have exhausted all efforts to recover the money and the debt needs to relate to the current or previous financial year.
6. Claim on depreciating assets
Create a complete list of assets that you need to operate your business and claim the full amount eligible for their depreciation. Many business owners don’t claim on all of their eligible assets.
7. Training
Make sure you claim on education and training expenses you or your employees carry out during the year. The training must relate specifically to the job at hand.
8. Prepay your expenses
Are there any expenses for services (including of course your accountant:) that you need to make? Do it before June 30 so you can claim the deduction.
9. Make instant asset write-offs
Are there assets you know you’ll need within the next 12 months? Buy them before June 30 and claim the deduction now if it is for business purposes and costs less than $30,000.
A good accountant will investigate the above areas and more so you can squeeze out the maximum possible gains.
So what’s the wrong way to do tax minimisation?
The most common is people attempting deductions they’re not eligible for. For instance, training or entertainment costs that don’t meet the ATO’s strict criteria. Or travel costs that are more personal rather than business in nature. In more dramatic cases, people have attempted to use ‘tax tricks’ they believe will lower their tax rate. Be very careful of these schemes as they can leave you open to fines and prosecution. Warning signs include schemes that offer excessively generous deductions of tax offsets compared to investment income or involve complicated financing arrangements with no clear commercial goal. In short, talk to your accountant if you have any doubts about the project.
A good, energetic accountant will get you the maximum possible savings – while working fully within the law and the latest ATO guidelines.