With many businesses’ attention starting to turn to the end of the financial year on June 30, entrepreneurs will invariably focus on all matters financial, particularly how they handle their tax situation.
However, tax shouldn’t be a once-a-year issue. Start-ups need to get into good, consistent tax habits from day one, or risk restricting growth.
Starting up a business involves navigating through many issues and making decisions, designed to get the business at its best starting point to springboard into a successful first few years.
With limited cash, the focus of start-ups should be on minimising costs and pursuing the important priorities.
As tax can be a significant cost and drain on cashflow, it’s important that you know your tax obligations and factor these into your planning and decision-making at the outset.
With this in mind, here are my top six tax tips for start-ups:
1. Don’t let tax solely drive decision-making
While most business owners want to save as many tax dollars as possible, it’s important that major financial decisions are made in support of the strategy and business plan first and foremost.
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Balancing the tax management approach against the commercial needs of the business should be a secondary consideration. Don’t spend $1 just to save 30c in tax.
A number of tax initiatives have been implemented for small businesses in the last few years, with the recent budget announcement of a $5,000 write-off for cars being one example of this.
These opportunities make it tempting for investment dollars to be directed where costs may be recouped via deductions or write-offs. When considering business investments, ask yourself a couple of key questions that will help assess whether it’s a good investment:
- What areas of the business are the priorities for investment and growth?
- How will this investment help generate leads or new potential clients?
- How will it drive greater efficiency?
- What other substantial benefit or return will it bring to the business?
2. Choose the right structure for your business
There are many considerations when choosing the right structure, including the commercial needs of the business, complexity of operating under the structure, costs of meeting the administration and reporting requirements, asset protection provided and the tax implications.
You need to have a clear sense of how the business will operate and then obtain some advice from your accountant about:
- How you will be taxed under the structure during the life of the business, as the business earns income and then pays or distributes it to directors or beneficiaries?
- How you can use the structure or a group of structures to meet your personal wealth needs and optimise your personal tax position?
- How will you be taxed when you come to sell the business? If you don’t have the right structure you could find yourself paying a lot more in tax than you need to.
3. Take advantage of concessions and incentives
There are several tax concessions available to small businesses, including the R&D Tax Concession, Small Business Entity Regime and Small Business Capital Gains Tax Concession.
Each provide cash back to the business when it undertakes specific activities or at a certain milestone in the life of the business, such as at sale.
Be aware of the concessions and incentives available to you and put steps in place to access them. They can provide the benefit of an additional injection of cash or help prevent cash leakage.