The Australian financial year runs from 1 July to 30 June, and many of the decisions that shape a business's tax position must be made before it ends. Once 30 June passes, the return can only record what happened. Tax planning is the work of making sure what happened was considered rather than accidental.
Why timing matters
A tax return is prepared months after the year closes, but the options it reflects close with the year. Whether a contribution was received, an asset was ready for use, a resolution was signed or an invoice was issued are questions of fact, fixed at 30 June. Nothing done in August changes the answer.
Planning earlier also changes the quality of the decision. In the last week of June, choices are made under time pressure with incomplete figures. In March or April there is time to estimate the year-end position, check the rules and fund whatever is decided.
What a pre-30 June review typically covers
A structured review usually begins with an estimate of taxable income for the year, built from the year-to-date accounts and a forecast of the remaining months, and then moves through a familiar set of areas.
- Income timing. When income is recognised for tax depends on how the business accounts for it, so the treatment of invoicing, deposits and work in progress should be understood rather than assumed.
- Deductible expenditure. Expenses the business genuinely needs can be timed with the year in mind, subject to the rules on prepayments and when a cost is incurred.
- Superannuation. A contribution generally counts when the fund receives it, not when it is sent, so amounts intended for this year need to reach the fund before 30 June. Caps apply and should be checked for the relevant year.
- Asset purchases. The depreciation rules and any small business write-off threshold that applies in the year determine the treatment, and an asset generally needs to be installed and ready for use by 30 June to count.
- Trust distributions. Trustees generally need to resolve how the year's income will be distributed by 30 June, and the deed may set an earlier date or particular requirements.
- Companies. Dividend decisions, franking, and loans or payments to shareholders and their associates that may fall within Division 7A are better identified before year end than discovered afterwards.
- Fringe benefits tax. The FBT year runs from 1 April to 31 March, on a different cycle from income tax. Employee benefits such as vehicles or salary-packaged items affect both the FBT return and the income year's deductions and records, so the two should be reviewed together.
- PAYG instalments. Where income is running well above or below the level the instalments assume, a variation may be appropriate, although one that proves too low can attract interest charges.
Not every item applies to every business, and the rules behind each one change over time. Thresholds, rates and eligibility conditions for the year in question should be confirmed with the ATO or a qualified adviser.
Records make the planning real
A decision made in May is only worth what the records can support. Contribution receipts, trustee resolutions, asset invoices and installation dates, loan agreements and minutes of dividend declarations should be filed at the time, not reconstructed at lodgement.
Good records also improve the estimate itself. A business that reconciles monthly can produce a reliable year-to-date position in April; one that catches up in July cannot plan, because it does not yet know where it stands. Records must be kept for the period the ATO requires, which is generally several years and longer in some situations.
Planning within the law
Tax planning is the ordinary business of arranging affairs sensibly within the rules: paying superannuation on time, using the concessions the law provides and timing genuine transactions. It is expected, and part of running a business well.
It is different from arrangements whose main purpose is a tax benefit the law does not intend. Australia's general anti-avoidance rules allow the ATO to look through schemes of that kind, and the ATO publishes alerts about arrangements it is examining. A useful test is whether the transaction would still make commercial sense without the tax outcome. If the only reason to proceed is the deduction, it deserves caution.
Tax planning and cash flow
Every tax decision is also a cash decision. A superannuation contribution, an asset purchase or a prepaid expense reduces the bank balance now to reduce tax later, and the business must fund both the payment and the next BAS. Planning that ignores cash simply moves the pressure to another month.
The reverse is also true. A pre-30 June review estimates the income tax and instalments that will fall due in the following year. Placing those amounts in the cash-flow forecast, alongside GST, PAYG withholding and superannuation guarantee dates, is one of the most practical outcomes of the review. Tax, finance and planning are one conversation, not three.
Where to start
- Bring the accounts up to date and reconcile them so there is a position to plan from.
- Book a review with your adviser in the third quarter of the financial year, with a short follow-up in May or early June to confirm decisions.
- List the year's fixed dates: superannuation, BAS and instalment deadlines, trust resolution timing and the FBT year end.
- Add the resulting estimates to the cash-flow forecast, so tax payments are funded rather than discovered.
This article provides general information only. It does not take into account your objectives, financial situation or needs and is not a substitute for professional advice. Speak with a qualified adviser about your circumstances.