Running a small business in Australia comes with many responsibilities, one of which is staying on top of your tax obligations. The good news is there are plenty of smart, legal strategies to reduce your tax bill and retain more of your hard-earned profits. Effective tax planning can make a significant difference to your business’s financial health, especially when implemented well before the end of the financial year.
In this article, we’ll walk you through practical tax-saving strategies tailored to small business owners so you can better manage your finances and minimise your tax liability.
1. Understand Your Business Structure
One of the first steps in tax planning is ensuring your business structure is right for your circumstances. Whether you’re a sole trader, partnership, trust, or company, each structure comes with different tax rates and obligations.
For example:
- Sole traders pay tax at individual income rates.
- Companies are taxed at the corporate tax rate (25% for base rate entities).
- Trusts can distribute income to beneficiaries, which may result in lower overall tax if the beneficiaries are on lower tax rates.
Reviewing your structure regularly, especially as your business grows, can lead to significant tax savings.
2. Take Advantage of Instant Asset Write-Offs
Small businesses can immediately write off the full cost of eligible assets under the instant asset write-off scheme. This applies to assets used for business purposes, such as tools, vehicles, office equipment, or machinery.
The threshold for instant write-offs changes, so it’s crucial to stay updated on current limits. Writing off assets reduces your taxable income in the year of purchase, meaning less tax paid upfront.
3. Prepay Expenses Before June 30
Another effective strategy is prepaying expenses before the financial year ends. Eligible expenses paid in advance (up to 12 months) can be claimed as deductions immediately.
Examples include:
- Rent for business premises
- Insurance premiums
- Memberships and subscriptions
- Office supplies
Bringing forward these payments allows you to claim the deduction sooner and reduce this year’s taxable income.
4. Contribute to Superannuation
Making additional superannuation contributions on behalf of yourself or employees is a powerful tax-reducing tool. Employer contributions (up to the concessional cap of $27,500 per year, including the Super Guarantee) are fully tax-deductible for the business.
If you’re self-employed, personal contributions may also be deductible. Super contributions reduce taxable income while helping build retirement savings.
5. Write Off Bad Debts
If you’ve invoiced clients but they’re unlikely to pay, you may be able to write off these bad debts and claim a deduction.
To do this:
- Ensure the income from the debt was previously reported.
- Show genuine efforts to recover the debt.
- Write off the bad debt before June 30.
This lowers your taxable income while keeping your financials accurate.
6. Review Depreciation Schedules
Many business assets depreciate over time, and you can claim a deduction for this decline in value. Reviewing your depreciation schedule ensures you’re claiming the maximum allowable deductions.
Also, consider scrapping obsolete assets that are no longer in use—they can often be written off entirely, resulting in an immediate deduction.
7. Maximise Deductions for Work-Related Expenses
A wide range of business-related expenses is deductible, including:
- Vehicle and travel expenses
- Tools and equipment
- Marketing and advertising
- Accounting and legal fees
- Office supplies
- Phone and internet costs
Ensure you’re accurately recording all legitimate expenses throughout the year. Small amounts add up, and meticulous record-keeping prevents missed opportunities.
8. Use a Business Vehicle Strategically
If your business relies heavily on vehicles, you might be eligible to claim deductions on vehicle-related expenses such as:
- Fuel and maintenance
- Registration and insurance
- Depreciation
You can choose between the cents per kilometre method or the logbook method. The logbook method usually offers more precise (and often higher) deductions but requires detailed records.
9. Split Income Where Possible
Splitting income with family members (through trusts or partnerships) can reduce the overall tax rate if they’re in lower tax brackets. However, this strategy requires professional advice to ensure compliance with tax laws, especially around the ATO’s personal services income (PSI) rules.
10. Consider Deferring Income
If your business is likely to report a high income at year-end, consider deferring the receipt of income until the new financial year. Delaying invoicing or receiving payments after June 30 can move the tax liability to the next year, providing immediate relief.
11. Set Up a Discretionary Trust
Many small businesses use discretionary (family) trusts to distribute profits to beneficiaries in the most tax-effective way. Income can be distributed to family members in lower tax brackets, reducing the overall tax paid. Trusts also provide asset protection benefits.
12. Keep Track of Home Office Deductions
If you conduct some business activities from home, you may be eligible to claim a portion of:
- Electricity and gas
- Internet and phone costs
- Office equipment depreciation
The ATO offers simplified methods (like the fixed-rate method) for calculating home office expenses, but detailed records can result in larger deductions.
13. Reinvest Profits into Your Business
Rather than drawing profits as personal income, reinvesting them into your business—whether through purchasing equipment, upgrading systems, or expanding—can reduce your taxable income and support long-term growth.
14. Use Professional Accounting Advice
Engaging a qualified accountant familiar with small businesses is an investment rather than an expense. A good accountant will help you navigate complex tax laws, identify deductions you might miss, and structure your finances efficiently.
They’ll also ensure you comply with ATO regulations, preventing costly penalties or audits.
15. Lodge on Time to Avoid Penalties
Late lodgement of tax returns and Business Activity Statements (BAS) can attract fines and interest charges. Staying organised throughout the year and lodging all necessary paperwork on time saves you money and stress.
Final Thoughts
Tax planning isn’t something you should leave until the last minute. The most successful small businesses adopt proactive strategies throughout the financial year to minimise their tax burden and maximise their cash flow.
By understanding what’s deductible, managing your business structure effectively, and keeping excellent records, you can make a significant difference to your bottom line. And, of course, enlisting the help of a trusted accountant ensures you’re not leaving any money on the table.
Implement these smart strategies, and you’ll not only reduce your tax bill but set your business up for ongoing financial success.
Here at Toyne Accountants, we specialise in helping small businesses thrive. An investment in good accounting advice can lead to financial peace of mind. Book a meeting with us today.
