The year is just under way and now is the time to start planning your tax matters for 2011.
If you’re new to business then you have the advantage and disadvantage of not knowing or accepting some of the business patterns that some SMEs take for granted.
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The advantage of not knowing is that you don’t automatically have to accept that ‘this is the way it is going to be’.
You can deal and react to the year as it unfolds. In the process, you have the opportunity to buck the trends.
The disadvantage is you don’t have the benefit of experience and so there might be a few surprises along the way. So what are some of the things you can expect?
You are only days away from what is typically the worst cashflow month of the year for small business. February can be crunch month. Why?
There are a number of reasons – increased costs in the lead up to the Christmas period, holiday periods and a downturn in activity over January, reduction in consumer spending in February as the Christmas bills come in and children head back to school.
All of these factors and more will squeeze February cash. That’s the income problem and it will be compounded by some of the costs you are about to face.
At the end of January you will be liable for quarterly superannuation guarantee payments, followed by the December quarter BAS due for most SMEs at the end of February.
Cash trends will vary from business to business and not all industries are affected in the same way. The trends probably apply to 80% of the market. The right staring point is to understand whether you are part of the 80% or in the remainder.
Map out your tax commitments. This should include when returns are due and also payments.
The next five months will bring on an increased level of reporting. Many businesses tend to leave their tax lodgements until the second half of the financial year.
So in addition to normal instalment activity and business activity statements you will also need to allow time for your annual income tax return, and don’t forget the FBT year is only 10 weeks away.
Too often annual tax returns are left to the last moment. This can end up costing you money because it increases the risk of something being missed.
Tax payments will be a monthly event for most businesses and typically there is more going out in the second half of the financial year than the first.
If your 2010 year profits increased, then there may be an additional tax liability that is about to happen. The Australian Tax Office has been quite reasonable when taxpayers have sought some extension of time for payments. Don’t rely on this continuing forever.
The ATO is increasingly looking at business structures and how owners are managing the separation between the business and themselves. This particularly applies to businesses that operate through a trust or company structure.
The ATO is looking much more closely at trust structures and the operation of private companies with dividend payments and shareholder loan accounts.
You need to make sure that your structure is both efficient and effective for current tax treatments. Because it was okay some years ago does not automatically mean that continues today.
In amongst everything else, don’t leave your tax planning until the last minute. The calendar year may have only just started but in a blink of an eye we’ll be approaching the end of the financial year. Smart tax planning is a year round event, not something left until the last moment.
Get on top of these areas early and the year will be a better one for you.
Greg Hayes is a director of Hayes Knight and specialises in taxation and business planning advice.