Why Tax Planning Strategies are an integral part of Business Growth

For many businesses Tax Planning is a topic that comes to mind briefly when the annual tax return is being prepared and maybe again after it has been submitted. It is often a subject that business owners know they need to invest time in but is relegated down the ‘to-do' list as the day-to-day demands of running and growing a business seem to allow no extra time for anything else. However, by the time transactions have taken place or the end of the financial year rolls around, it is too late to begin Tax Planning. 

The truth is, building a solid tax strategy can have a significant impact on the bottom line and growth capabilities of a business, especially if the strategy is conceived and introduced early in the tax year. Given the complexities associated with tax rules, unless businesses plan appropriately, they can risk paying taxes that could have been avoided. Often seemingly small execution decisions can have enormous tax liability implications, which is why careful planning and expertise are necessary to navigate the complicated world of tax and achieve optimal tax efficiency.

Tax Planning is as important as the development of a business plan for an organisation's success and growth. Both give business owners and managers a detailed knowledge and understanding of their business and a platform to build strategies that will allow long-term business growth.

What is Tax Planning?

Tax Planning impacts many aspects of a business’s activities and should be part of every organisation’s structural decision-making. It will have a far-reaching impact on an organisation’s legal structure and standing as well as the owner's and managers' long-term financial position.

There are numerous considerations during the Tax Planning process. For example, company structure, growth ambitions, size and timing of purchases, expense planning, deduction and credit opportunities, and with the ever-changing regulations and guidelines, there are many new opportunities and considerations for effective Tax Planning.

As well as Tax Planning for the company, it is also important to consider the Tax Planning benefits for owners and managers of a business, especially with regard to optimising investments and retirement plans that optimise a business owner’s overall financial strategy and filing status.

Related: Now is a good time to start Tax preparation and Tax Planning

Business restructuring in a tax-efficient way

Many businesses experience or require structural change as they grow and adapt to changing markets. For example, businesses often start out as sole traders or partnerships of individuals, but as they mature and grow, the owners may look to incorporate or introduce a trust into their structure. The reasons for this kind of planned tax-based change are threefold:

• To protect assets by separating personal assets such as the family home from business creditors, or isolating business risks from other business or personal assets. 
• Enable streaming of income to other members of the family, which a trust allows but can’t be done by a sole trader.
• When new stakeholders and investors are introduced to a business, it is often better done through a corporate or unit trust structure than a sole tradership.

These are just three examples of why Tax Planning is so important to businesses at all stages of their life cycle and how making informed and beneficial structural business decisions based on good advice, can have a huge impact on revenues, growth, long-term costs and preventing the possibility of long-term organisational structural problems.

Choosing a business structure that aligns with business goals 

The structure of a business or group can be crucial to the business owner's long-term objectives. It is essential to consider an appropriate business structure that best reflects your business's future goals. To illustrate this, a business owner that aims to prepare their business for sale in the next 3 - 5 years, needs to consider which business structure will be most appropriate in helping to mould a more attractive business and facilitate a scale-up. 

If businesses don't plan ahead by having the right structures in place that align with their long-term business goals, they risk jeopardising the outcomes of their objectives. 

Here are some benefits of Tax Planning: 

• Save time and reduce errors – Tax Planning throughout the year minimises the infamous, time-consuming, end-of-financial-year rush to sort finances, which can also often result in costly errors. 
• Reduce tax liability – The main objective of Tax Planning is to reduce the amount of tax a business pays by maximising deductible items and ensuring tax efficiency is optimised. 
• Enable future growth – Having a solid tax strategy sets the stage to make better-informed business decisions in the long term. Businesses are better equipped to make financial projections, strategic business investments and more. Additionally, Tax Planning will help understand how changes in business operations and strategy, impact tax obligations.
• Increased investment for growth – By fully understanding tax liabilities, businesses can reinvest funds that might have previously been held back for tax, back into the business.
• Allow time to strategise – An early start to Tax Planning before year-end will allow businesses more time to apply the strategies. Tax planning also enables businesses to understand the different risk levels that are associated with different strategies. 
• Tax Planning gives business owners far greater knowledge about compliance and how it works – Business owners can work with their accountants to understand how well good Tax Planning works and therefore be better equipped to implement the best tax strategies for growth and look for opportunities to minimise their tax liabilities going forward.
• Better decision-making for businesses – Tax Planning allows business owners to have a real insight into their business and allow them to see the opportunities for change and where the business has potential for growth. It will give business owners a view of how to increase profits from the existing business and identify new areas that may not have been previously explored. It will also throw up new investment opportunities and how best to structure those investments.
• Understand and prepare for tax liabilities – By planning early and planning well, businesses will know what their tax liabilities will be and so can make informed business decisions around investment for growth based on facts and knowledge. By understanding and preparing for tax liabilities businesses are able to better manage their cash flow. 
• Superannuation – Effective Tax Planning will ensure that superannuation strategies are as effective as possible. There are many options available to businesses – salary sacrifice, self-managed super funds (SMSF) and a constantly changing array of allowances and limits to contributions. Working with the right Accountant early in the year will ensure the best superannuation outcomes.
• Stay up to date with legal obligations – Legislative change is frequent with respect to compliance and tax legislation, so it is important for businesses to work with their accountants to ensure they understand changing requirements and opportunities to minimise their tax liabilities as they seek to grow and maximise their profitability.
  

Engaging a Tax Advisory Company 

Azure Group have a specialist taxation team, who manages the taxation and advisory function for a myriad of businesses and can offer a range of tax advisory services. Partnering with a firm that is commercially minded and tax savvy can add significant value to your overall business and tax and accounting functions. Get in touch if you need help.

Related: Why your Business needs Professional Tax Preparation Services?

Have you noticed our #FridayExpertTips... here's one that relates to #Taxation

"The golden rule: keep records! Good record keeping is your best friend for efficient business management and will also make life easier if the ATO ask you questions."

This article is intended to provide general information only, and is not to be regarded as legal or financial advice. The content is based on current facts, circumstances, and assumptions, and its accuracy may be affected by changes in laws, regulations, or market conditions.  Accordingly, neither Azure Group Pty Ltd nor any member or employee of Azure Group or associated entities, undertakes responsibility arising in any way whatsoever to any persons in respect of this alert or any error or omissions herein, arising through negligence or otherwise howsoever caused. Readers are advised to consult with qualified professionals for advice specific to their situation before taking any action.