Okay, the title is a bit over the top. But now that I’ve got your attention it’s worth reading on…
It’s tax time…
And so begins another year of questions around how I can reduce a tax bill to zero or phone calls complaining about the ATO. And I get it, nobody, not even me, the accountant, likes to pay tax. But with a recent shift in focus for the ATO, now is not the time for ‘creative claiming’, now is the time to get organised and get prepared.
With the ATO having cleaned up the tax affairs of big corporations their focus has now changed to a class that would usually consider themselves ‘too small’ for the ATO to come after – SMEs and Individuals.
As you’ll find at many financial services firms that have embraced tech, nearly all of our business systems are now running electronically and are coupled with the ATO’s data matching systems, government agency systems and banking institutions. What does this mean? Well, it means that it’s becoming increasingly harder to pull the wool over the ATOs eyes (*sighs*).
But, what if I told you that paying tax wasn’t a bad thing?
Now I know what you’re thinking… How can paying tax to our governmental overlords be a good thing? Nobody likes forking out money, especially when they can’t see what they’re paying for. BUT, think about this for a moment, what does paying tax really mean? It means that you are making money! Which at the end of the day is why we go into business or make an investment, right? Changing your attitude towards tax can help a great deal in being prepared, reducing unexpected liabilities and reducing your overall stress.
I regularly hear from clients who are upset at tax time because their rental property is making money, preferring to have a negatively geared investment (losing money) to receive a refund of the tax paid on their salary. For some, the idea of handing money over to the ATO overshadows the positive outcome of an investment making money.
The question begging to be answered is why? Is it the thought of working hard only to hand over a piece of the pie to someone else? Or do we really need to feel like we’re ‘gaming’ the system by getting a tax refund at all costs? Whatever the reason, this mindset can cause stress, unforeseen costs (in the way of tax liabilities) and potentially an expensive ATO audit at tax time.
And so, I’m here to tell you that the hate-hate relationship with tax time and the ATO is unnecessary or at the very least can be mitigated with the following tips—
1. Tax Planning
Tax Planning allows me (or your business accountant) to get your affairs in order before the end of the financial year. During Tax Planning we make you aware of any tax liability coming your way come lodgement, which gives you ample time to prepare.
2. Put Money Aside
Yes, yes, we should all save money, but that’s not what I’m talking about here. In this case, I’m referring specifically to capital gains or rental property profits. When the money comes in it’s easy to get carried away and think ALL the money is yours to spend (*uncorks bottle of Dom Perignon*), however unlike wages or dividends, tax has not been prepaid on that money, and if you are over the income tax free threshold you’re going to be up for paying some tax. So put a portion of that money aside rather than towards those new golf clubs or that Chanel bag, you’ll thank yourself later!
3. Budget, Budget, Budget
In a time where ‘buy, use, sleep, repeat’ has never been more prevalent, budgeting for a rainy day has never been more important. Irresponsible spending leads to unpaid debts, and with the ATO cracking down, it is a slippery slope they will relentlessly chase you down. To avoid getting into debt with the ATO, start by preparing a budget, and make sure to hold yourself accountable to it. Review and revise it, make sure you are setting yourself realistic and attainable goals, tackle debts when they arise and be mindful of future debts so you’re prepared.
The old cliché is that tax is one of the certainties of life, and it is. Being prepared for it will help bring clarity to your personal and business finances with the added benefit of making life that little less stressful come tax time.