The family partnership that I run with my wife had a fantastic year of trade due to cattle prices, but I'm concerned about the size of our tax bill. Can I predict how much tax I might need to pay, and is there a way to reduce it?
Tax planning before June 30 is the best way to assess your potential tax obligation.
Essentially, this means forecasting where your year-end profit or loss result may land based on your actual year to date results and estimates of income and expenditure to come prior to June 30.
The earlier you start, the more options will be available to you.
Like most things tax-related, time is crucial to planning and the earlier you start, the more options will be available to you.
Once you have a sense of what your profit and loss results may be, you can start to estimate your potential tax exposure and consider the available options to manage it. As a reminder, tax is paid on profit, not revenue, although strong sales can be a lead indicator to a potential tax obligation.
Deciding to hold off on selling the next herd of cattle until after June 30 is an easy solution to managing profit, but the most common consideration to reduce an estimated tax liability is to look at options regarding additional expenditure on operational costs prior to June 30.
Individual family circumstances are critical in understanding available options regarding tax, however additional considerations in agribusiness could include:
- Prepayment of expenses.
- Capital expenditure (noting the current $150,000 instant asset write off).
- Farm management deposits.
- Superannuation contributions.
Available cash flow is a vital element in tax planning and additional expenditure should relate to a current or forecast need of the business. Spending on unnecessary costs to reduce tax should be avoided.
The tax planning process is also an opportunity to take stock on how effective and suitable your trading structures are based on your own family circumstances. Given taxes are guaranteed, do your operational structures meet your needs?
Making profit is great, as it is one indicator that the business is sustainable, however, a trailing consequence of profit is tax. Managing what your year-end tax liability is can only be achieved if you take the time to plan and consider your options prior to June 30. I recommend working with your tax agent and financial adviser if superannuation is part of your strategy to support the most appropriate solution for you.