How Tax Planning Helped a Gold Coast Business Reduce Tax Liabilities
A couple of months ago, we published a blog post on the benefits of tax planning. Today, we’d like to take that topic out of the theoretical and into the practical, by sharing a case study on one of our clients and how they benefited from tax planning.
Introducing the Nathaniel Group
Directed by Adrian and Alissa Nathaniel, this group consists of two businesses – a self-managed superannuation fund, and other investments held outside of superannuation. The Nathaniels engaged us to perform their tax planning because they wanted to understand what their taxable position would be at the end of the financial year.
Tax planning for the Nathaniel Group
The Nathaniel Group needed to reduce its taxable position and increase tax deductions, while keeping within ATO regulations, to decrease its tax liabilities at the end of the financial year. Here’s the process that we followed:
- In April 2015, we talked to the Nathaniel Group about its goals, gathered its financial information, and calculated a forecast of its taxable position at the end of the 2015-2016 financial year.
- We sat down and worked through strategies and scenarios that the Nathaniel Group could use to legally distribute profits between its entities in order to reach a better taxable position.
- We presented some options on tax liability reduction, using asset investments like superannuation and business equipment.
- To increase the number of deductions available, we recommended that all creditors’ accounts be cleared costs like rent and loan interest be pre-paid for next financial year before 30 June.
- We assessed director loans and liabilities, to check for any potential tax law compliance issues.
- Because the Nathaniel Group had a major capital gains event during the financial year, we walked through a number of small business exemptions that could be applied to the event, reducing the amount of capital gains tax payable.
The end result
The Nathaniels had a clear idea of how their activity for the next financial year would affect their finances come tax time – and all before the financial year even began:
- They knew to a very close estimate, how much tax they would have to pay.
- They could set aside the correct amount for tax, then relax and spend more money on purchasing assets or reinvesting in their business – or even have a holiday – rather than being uncertain and worried about possible tax debts.
- They could implement tax liability reduction strategies throughout the financial year to further reduce tax liability, with a clear understanding of the result of those decisions on their bottom line.
- They had the option of investing funds into their superannuation and understood how that could reduce their tax further and increase their retirement funds.
- As much as possible they were able to understand the rules in relation to capital gains and deferring capital gains.
- The bottom line tax saving that they achieved through the exercise was in the vicinity of $17k.
Twelve months after that tax planning exercise, the Nathaniel Group’s tax for the financial year has been calculated. The resulting tax payable is very close to the estimate made during the planning phase, which isn’t a surprise and can easily be paid from funds set aside for the purpose. The Nathaniels are now excited to sit down and plan for the next financial year!