Tax Planning Guide

What tax planning is (and isn't)

Tax planning is arranging your affairs, within the rules, so you don't pay more tax than the law requires — and so tax never arrives as a surprise. It is not aggressive schemes, and it is not a frantic conversation with your accountant in the last week of June. Good planning is mostly boring: knowing your position early, timing decisions sensibly, and using the concessions that already exist for small business.

Everything here is general in nature. Tax outcomes depend on your structure, turnover and circumstances, so run material decisions past a registered tax agent first.

Your structure sets the rules

The same profit is taxed very differently depending on how the business is held:

• Sole trader — business profit is your personal income, taxed at marginal rates. Simple, but no separation and limited flexibility.
• Partnership — the partnership lodges a return but pays no tax itself; each partner is taxed on their share.
• Company — pays tax at the company rate (the ATO publishes the current rates, including the lower rate for eligible smaller companies). Getting money out — salary, dividends, or loans — has its own tax consequences, including the Division 7A rules around loans to shareholders.
• Trust — profit is distributed to beneficiaries who pay tax at their own rates. Flexible, but distribution decisions generally must be resolved before year end, in writing.

Structure is a decision worth revisiting as the business grows — what suited a startup rarely suits a business with staff, premises and retained profits.

The levers that matter for SMEs

• Timing of income and deductions. Where cash flow allows, deductible spending brought forward and income deferred across year end can shift when tax is paid. This only makes sense for spending you'd do anyway — buying things purely for the deduction still costs you most of the price.
• Asset write-off rules. Small business depreciation concessions, including instant asset write-off arrangements, change with budget cycles. Check the ATO's current thresholds before committing to a purchase on the strength of them.
• Superannuation contributions. Contributions are generally deductible only when the fund receives them, so June contributions need lead time. Caps apply — check current limits before topping up.
• Prepayments. Small business entities can often deduct certain prepaid expenses covering a period into the next year, within the rules.
• Bad debts and obsolete stock. Both need to be genuinely written off before year end to be deductible in that year — review the debtor list and stock on hand while there's still time to act.

Don't plan tax, then fail on cash

The most common SME tax failure isn't a bad deduction — it's a good year followed by an unfunded tax bill, because PAYG instalments were based on the previous, smaller year. If profit is up, ask your accountant to estimate the true position early and either vary instalments or set aside the difference. A separate tax provision account, funded every month, removes most of the drama from tax time.

A simple planning rhythm

• Monthly — reconciled books, so your profit figure is real, and a transfer to the tax provision account.
• Quarterly — sanity-check PAYG instalments against actual performance when the BAS is prepared.
• Autumn (well before June) — a planning meeting with your accountant: projected position, super timing, asset purchases, trust distribution intentions.
• June — execute what was decided; document trust resolutions and write-offs.
• After lodgement — review what surprised you, and fix the process that let it.

Notice that none of this works without timely, accurate bookkeeping — tax planning is downstream of good financial operations. That's the core argument in our finance function overview, and part of what a connected back office is for.

Where the line is

Every lever above is orthodox. Schemes whose main point is a tax benefit — contrived structures, artificial losses, arrangements you'd struggle to explain commercially — attract the anti-avoidance rules and the ATO's attention. A useful test: if the arrangement only makes sense because of the tax outcome, it probably doesn't make sense.