Hello, hello, I’m not sure about you but I feel like I have just blinked and it’s already the end of the financial year! Marcus and I have been working with our amazing team on compliance for our clients. As we complete these returns, we often get asked by clients if there is anything they can do to reduce their tax. Unfortunately, at that point in time there are no options available to reduce their tax liability.
So, whilst there is a lot going on in the world of pharmacy, as we head into the end of the financial year, I think it’s important to bring your attention back to tax planning opportunities.
It is important to note that the strategies we are going to discuss can be put in place at any point in time during the year. We have the following key areas in our tax planning armoury:
· Structure
· Timing
Structure
When considering your next business investment, it is imperative you understand the ownership structures available to you and how they operate. The incorrect structure could have a wide ranging impact on the way in which your assets are protected to the amount of tax you pay over the life of your investment. It is also important to understand that in our industry the ownership structure is also guided by the Pharmacy Act.
The structures available include:
· a Company
· a Trust
· an Individual or
· a partnership of any combination of the above-mentioned.
When considering your structure, seek advice to understand the advantages and disadvantages of each structure and its suitability to your circumstances.
Some of the major considerations should include:
· Estimated turnover and net profit
· Costs to establish and maintain structure
· the tax rate applied to taxable income amongst each entity
· Protection of business assets
· If the business activity to be conducted is in a high risk environment
· The ability to access tax losses in the future
· The significance of your personal assets
Every situation and family group is unique and complex; the ways to restructure your interests to achieve significant, future tax savings and reduce risk will need to be discussed with your advisors.
Timing
Some of the following items have been summarised as effective tax planning which are time critical:
Income
Where possible, defer earning income until after June 30 to avoid paying tax in the current financial year. This may involve planning projects to be delayed where it does not negatively impact the business. Remember, this only ‘kicks the can down the road’. However, sometimes this can be very effective if the current year income is high and the following year income is expected to be low.
Prepay Expenses
To bring deductions forward, cashflow permitting of course, consider prepaying up to 12 months of deductible expenses such as interest on an investment loan, rent, insurance or subscriptions.
Purchase business assets
The Government has announced that it will extend the $20,000 instant asset write off for small businesses until 30 June 2025. This measure allows for an immediate deduction for assets that are first used or installed ready for use by 30 June 2025.
Review of your depreciation schedule
Check your asset register for obsolete assets or assets that no longer exist, highlight these for your bookkeeper or accountant to write off prior to 30 June 2024.
Stock Take
Ensure you have done a physical stocktake.
Small Business Skills & Training Boost
The 20% deduction boost for skills and training will apply to small businesses to deduct an additional 20% of expenses on eligible training courses.
Voluntary superannuation contributions
You can currently claim up to $27,500 as a tax deduction in the financial Year ended 30 June 2022. This is known as the concessional contributions cap.
In addition to the current year cap, you may be entitled to contribute the unused amounts of your concessional contributions cap for a maximum of 5 years.
For example, if you didn’t pay any superannuation contributions for FY2019 to FY2023, then you may be entitled to make deductible super contributions to the value of $130,000 in FY 2024.
Please note that these unused caps do have an expiry date as shown below:
Please note that for these contributions to be deductible, a notice of intent is required to be completed and lodged with your superfund at the time you make the contribution.
Summary
This list is not exhaustive by any means and is very general advice.
We strongly recommend you talk to your accountant as every person’s tax position is unique and requires consideration of a multitude of factors to design an effective tax plan.
“The hardest thing to understand in the world is the income tax” – Albert Einstein