For most small to medium enterprises (SMEs) tax planning can be pushed down the agenda and only dealt with on an annual basis with little time and effort given. However, tax represents one of the most significant business costs and by implementing ongoing tax planning it can save a business time and most importantly, money.
Michael Derin, managing director of Azure Group, a Chartered accountancy firm specialising in providing strategic advice to SMEs, says many businesses don’t understand the benefits of ongoing tax planning.
“Under the current economic climate with the government announcing many tax concessions it is essential to have planned and considered the opportunity to be able to access these earlier then later.
“We have helped many clients save considerable money and time by identifying potential tax issues and reviewing their affairs before the financial year end.
“By implementing an ongoing tax planning system, businesses can have better control over cash flow, better plan business activities and set budgets and be in a position to maximise opportunities that come their way, like new business ventures and acquisitions and application of government grants,” added Derin.
According to Derin, an effective tax plan includes many elements with varying levels of complexity. But the key areas for SMEs to consider when implementing an ongoing tax plan include:
Record keeping
Ensuring your financial records are kept up to date and in order can make a considerable difference in the time it takes to process tax information.
“Often it is inadequate record keeping systems that let small businesses down with their tax. It may be your accountants job to process your tax return but you can certainly help make this process more efficient by ensuring financial records are prepared,” said Derin.
Consideration of your financial position
“There are big advantages to knowing and reviewing your current financial position. Managing profits and expenditure can include activities such as obtaining substantiation for writing off bad debts and considering incurred expenditure or any unearned revenue.
“Unearned revenue is revenue you may have earned without yet providing any goods or services, for instance a project has been pushed back and your services have not been required although you have been paid,” said Derin.
Tax deductions
Tax deductions are made in order to reduce taxable income and also payable tax. A business may make a number of tax deductions, including donations, self-education expenses, insurance premiums and other work related expenses. Small businesses with a turnover of less than $2 million may also be eligible for tax concessions.
“It’s a good idea to plan for tax deductions. For instances, an organisation can put in place a sponsorship management plan, which is not only favourable in terms of corporate responsibility but can also be tax effective. Looking at educating your staff to improve their level of skills and knowledge can also be a tax deductible activity. There are many activities and expenses that small business can claim tax deductions for, by putting in place a plan a business can make the best use of these,” said Derin.
Tax effective investments
“If you borrow funds for investment purposes you may be eligible for tax benefits, for instance if the investment produces an income, the costs of owning it are tax deductible, including the interest on the loan. If you borrow and the costs of the investment exceed the income, the deductions can reduce your other taxable income.
“Considering the tax advantages when purchasing an investment should not only be the primary reason for undertaking the investment, however the opportunity as an individual to take advantage of pre-payment of interest to bring forward tax benefits could also be considered,” said Derin.
Superannuation
“Superannuation can be a very tax effective strategy. If you make salary sacrificed contributions to your super in additional to the contributions made by your employer, you may be eligible for Government Co-contribution. If you are self-employed then your super contributions may be tax deductible. Those who contribute to a spouse’s superannuation may be eligible for a tax offset if they have a low income or earn nothing.
“Self managed superannuation funds can be complicated and have many tax implications. It is best to seek expert advice to ensure it is set up correctly and you are meeting your taxation obligations and are receiving the maximum tax benefits,” said Derin.
“To effectively manage tax planning for Azure Group’s clients, we have developed a three step process that encompasses the above areas and helps to streamline the process to ensure maximum efficiency. Anyone considering implementing an ongoing tax plan for their business should consult an accountant to help them make sure they capitalise on every tax-saving opportunity,” said Derin.
Azure Group was established in 2002 by Michael Derin and since its foundation the company has grown exponentially with annual turnover increases in excess of 40 per cent. In 2008, the company continued to grow by another 20 per cent and they also expanded by opening offices in the Gold Coast.
Derin started Azure Group with the idea of offering strategic level commercial advice to SME clients. The fundamental thing that he identified was that SMEs rarely get that level of assistance because they can’t afford or attract an experienced full-time Chief Financial Officer (CFO) normally only afforded by a large corporate and they can’t find it in the consulting world.
While tax planning can be a laborious task, if done correctly, it can save your business both time and money.
Derin is the managing director of Azure Group, a chartered accountancy firm specialising in providing strategic advice to SMEs. For more information about Azure Group services, please visit www.azuregroup.com.au
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