What is Tax Planning and Why is it Important?
Tax planning for a proactive accountant can sometimes be a year long process. Strategies are often implemented at the beginning of the financial year with your progress tracked each quarter (which normally coincides with the preparation of your BAS). You may notice that your PAYG Tax Instalments vary each quarter – this is not a result of the ATO being unable to decide on how much tax you should pre-pay, but likely your accountant varying your instalments based on your current tax position – so you are only paying what you need to pay.
Top Highlights
- Tax Planning Essentials: Tax planning is a year-round legal strategy to minimise tax liability, optimise cash flow, and maximise deductions, typically reviewed April-June each financial year
- Current Key Strategies: Instant Asset Write-Off: Businesses under $10M turnover can claim immediate deductions for assets under $20,000 (until 30 June 2025); Superannuation contributions capped at $27,500 annually with carry-forward provisions available
- Personalised Approach Required: Every business has unique circumstances, effective tax planning must be tailored to your specific business structure, financial goals, and compliance requirements with professional accountant guidance
Tax planning meetings are usually held between April and June each financial year. This is where your accountant assesses your current tax position and looks for ways to minimise your tax liability, maximise your after-tax position and even boost your cash flow.
What is Tax Planning?
Tax planning is the process of analysing your financial situation and structuring it in a way that minimises tax liability within the legal framework. It involves strategic financial decisions that help individuals and businesses optimise their tax position while ensuring compliance with tax laws.
The primary objectives of tax planning include:
- Reducing tax liabilities through deductions, credits, and exemptions
- Ensuring tax compliance to avoid penalties and audits
- Maximising tax efficiency for long-term financial stability
- Structuring investments and business activities to leverage tax benefits
When managing taxes, it’s important to distinguish between tax planning, tax compliance, and tax evasion. While tax planning and compliance involve legal strategies to minimise tax liability and meet obligations, tax evasion is an illegal act that can lead to severe penalties. Below is a comparison to clarify their key differences.
| Aspect | Tax Planning | Tax Compliance | Tax Evasion |
| Definition | Legal methods to reduce tax liability | Following tax laws and regulations | Illegal practice of avoiding taxes |
| Legality | Fully legal | Required by law | Illegal and punishable |
| Goal | Minimise tax liability while staying compliant | File accurate tax returns and pay dues | Evade paying due taxes |
| Examples | Using deductions, tax credits, and deferral strategies | Filing returns on time and paying taxes owed | Underreporting income, inflating deductions |
(Source: ATO Tax schemes)
For more insights on structuring your business for tax efficiency, visit our comprehensive guide on choosing a business structure in Melbourne.
Why Is Tax Planning Crucial for Small Businesses?
Tax planning is a vital component of running a successful small business. Without proper planning, businesses may end up paying more tax than necessary, which can negatively impact cash flow and profitability.
Some key reasons tax planning is crucial for small businesses include:
- Optimising cash flow: Proper tax strategies help businesses manage expenses efficiently, ensuring more available cash for growth.
- Reducing tax burden: Businesses can take advantage of deductions and credits to lower their taxable income.
- Avoiding penalties and audits: Staying compliant with tax regulations helps businesses avoid unnecessary fines and legal complications.
- Enhancing profitability: Lower tax liabilities mean more resources for investment and expansion.
What Do Accountants Consider During Tax Planning?
There are a few great tax minimisation strategies that accountants will investigate, based on your circumstances. These can include, but are not limited to, the following:
Instant asset write-off
(Updated 2025) The Instant Asset Write-Off allows small businesses with an annual turnover of less than $10 million to claim an immediate tax deduction for eligible assets costing less than $20,000 (net of GST). (Source: ATO Small Business Support) . This applies on a per-asset basis, enabling multiple deductions, provided the assets are purchased and installed ready for use between 1 July 2024 and 30 June 2025. Assets exceeding $20,000 can be added to a simplified depreciation pool and depreciated at standard rates. This measure, extended under the 2024–25 Budget, is designed to support cash flow and encourage business investment.
Important: These thresholds and dates change regularly based on federal budget announcements. Always check the latest ATO guidelines or speak with your accountant to confirm current eligibility and limits before making significant asset purchases.
Temporary Full Expensing (Expired)
The ATO’s temporary full expensing measures allowed businesses to claim an immediate deduction for the costs of new assets that were acquired and installed ready for use. This measure was available for eligible assets purchased and ready for use by 30 June 2023. While temporary full expensing has now expired, businesses should stay updated on current ATO depreciation rules and any new government incentives that may replace it. Always check with your accountant or the ATO for the latest asset deduction measures available to your business.
Loss Carry Back (Expired)
The Loss Carry Back tax offset was available to trading companies that incurred tax losses and allowed them to receive a refund of tax paid in earlier profitable years. This measure applied to the 2020–21, 2021–22, and 2022–23 income years and expired on 30 June 2023. While this specific offset is no longer available, companies with tax losses can still carry them forward to offset against future taxable income. Speak with your accountant to explore current loss utilisation strategies and any new government measures that may benefit your business.
Superannuation Contributions
The ATO has limited the amount that can be contributed to your nominated superannuation fund with their concessional contributions cap. This annual cap currently sits at $27,500 and includes any contributions made to your fund by your employer, related business or you individually, where the contributor is claiming it as a tax deduction. Individuals who have a super balance of less than $500,000, who have not used their contributions cap in previous years (2019 – 2022) may be eligible to carry forward any unused cap to the 2023 financial year. This means you may be able to increase your contributions to super in 2023 obtaining a higher tax deduction, which can result in significant tax savings.
Looking for more ways to boost your retirement savings while reducing tax? Explore our guide on superannuation strategies for small business owners.
Tax Rates and Dividends
The company tax rate for most SME’s is 25%, and 30% for larger companies and passive investment companies. When a company pays a fully franked dividend it passes on the franking credit at the company’s tax rate (25% or 30%) – however, that does not mean the ultimate recipient of this dividend is taxed at the same rates. Individual tax rates vary depending on what other income has been received during the year, which makes it important to address when dividends are issued and how. If your Family Trust owns the shares in your trading company, then it may be beneficial to distribute any dividend income to lower income earners within your family group, or a passive investment company. If a passive investment company is the end recipient of a fully franked dividend, there may be additional top-up tax that needs to be paid to the ATO.
Trust Distributions
Every financial year before 30 June trustees need to decide who is going to receive income from their discretionary trust and how much. This decision needs to be in writing and signed before the financial year concludes. As part of tax planning, your estimated year end position will be established, allowing your Trust Distribution Minutes to be reviewed and adjusted appropriately.
Reviewing your current tax structures?
With the ATO tightening the rules and regulations around certain tax structures, it is always beneficial to review how your business is structured and whether you are getting the most from it. Tax planning is the perfect time to review how your business is currently structured and if it’s the most beneficial option to your current circumstances.
Important Note: Tax Planning is Personal
Every business and individual has unique circumstances, financial goals, and tax obligations. The strategies outlined above are general examples and may not suit your specific situation. Effective tax planning should always be tailored to your individual circumstances, business structure, and compliance requirements. We strongly recommend consulting with a qualified accountant or tax advisor who can assess your position and provide personalised advice that maximises your tax efficiency while ensuring full compliance with ATO regulations.
How to Choose the Right Tax Planning Approach?
Choosing the right tax planning approach is essential for ensuring compliance, maximising tax efficiency, and securing financial stability. The right strategy depends on various factors, including your business structure, financial goals, and familiarity with tax regulations. Whether you opt for a DIY approach or seek professional guidance, understanding the pros and cons of each method will help you make informed decisions that optimise your tax position while minimising liabilities.
DIY vs. Hiring a Tax Consultant – Which is Better
When deciding between managing your own taxes (DIY) and hiring a professional tax consultant in Australia, it’s essential to weigh the benefits and drawbacks of each approach. Below is a comparison table outlining the pros and cons:
| Method | Pros | Cons |
| DIY Tax Filing | – Cost Savings: Eliminates professional fees associated with hiring a tax agent. – Personal Learning: Enhances understanding of personal or business finances and tax obligations. – Control: Full oversight of the tax preparation and filing process. | – Time-Consuming: Preparing and filing taxes can be lengthy, diverting time from other responsibilities. – Complexity: Navigating intricate tax laws without expertise may lead to errors or missed deductions. – Risk of Errors: Mistakes can result in penalties or audits by the Australian Taxation Office (ATO). |
| Hiring a Tax Consultant | – Expertise: Professionals possess up-to-date knowledge of Australian tax laws, ensuring accurate and compliant filings. – Time Efficiency: Delegating tax tasks frees up personal or business time. – Maximised Deductions: Consultants can identify eligible deductions and credits, potentially increasing tax refunds. – Extended Deadlines: Registered tax agents may offer extended filing deadlines beyond the standard October 31 date. | – Cost: Professional services come with fees, which may be a consideration for individuals or small businesses with limited budgets. – Dependence: Relying on an external party requires trust and effective communication. – Variable Quality: The level of service can vary between consultants; choosing a reputable professional is crucial. |
Tax Planning for Different Business Structures
The structure of your business significantly impacts your tax obligations. Choosing the right structure can help you reduce tax liability and increase financial efficiency.
| Business Structure | Tax Implications |
| Sole Trader | Income is taxed at personal rates; simple structure with no separation between business and personal assets. |
| Partnership | Profits are distributed among partners and taxed at individual marginal rates; partners are jointly liable for debts. |
| Company | Taxed separately at corporate rates (25% for base rate entities, 30% for others); dividends distributed to shareholders may be franked. |
| Trust (Discretionary or Unit) | Income is distributed to beneficiaries who pay tax at their individual rates; offers flexibility in income distribution for tax planning. |
What Do I Need To Do For Tax Planning?
Tax planning is an ongoing process that is best guided by a proactive, experienced accountant. They can review and assess your potential year end position and provide guidance and advice on ways to effectively minimise your tax, tailored to your circumstances.
Ready to take control of your tax position? At Future Advisory, tax planning is one of our strongest services. We work with Melbourne businesses year-round to ensure you’re paying only what you need to pay, nothing more. If you have already paid for your 2025 tax planning meeting, one of our admin team members will reach out to you in the coming weeks to book in your meeting.
If you feel you could benefit from tax planning and you’re either an existing client who doesn’t have this service included in their package, or you’re not yet a client, contact Future Advisory today to book your tax planning meeting. Let’s make sure you’re maximising deductions, optimising cash flow, and setting your business up for financial success.
Want to explore more ways to optimise your business finances? Check out our guide on choosing the right business structure or learn about essential tax deductions for Australian small business owners.
FAQ
1. What is the best time to start tax planning?
Tax planning should be an ongoing process, but the best time to assess and implement strategies is at the beginning of the financial year and before the end of June to take advantage of available deductions and credits.
2. Is tax planning only for large businesses?
Absolutely no, tax planning is essential for businesses of all sizes. Small businesses, in particular, can benefit by managing cash flow efficiently, reducing tax burdens, and ensuring compliance with tax laws.
3. What happens if I don’t engage in tax planning?
Without tax planning, you may end up paying more taxes than necessary, miss out on deductions, face cash flow issues, or even incur penalties due to non-compliance.
4. Can I change my business structure to optimise taxes?
Yes, businesses can restructure to take advantage of more favourable tax treatment. However, this should be done carefully with the guidance of an accountant or tax professional.
