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| Tax minimisation strategies for child care providers: The why, what, when, where and how |
| by Peter Khalil |
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Tax minimisation is legal. Tax evasion isn't! One permits the use of strategies to pay less tax within the intent of the law, while the other is about deliberate exploitation of the tax system. Not declaring cash income or under-declaring income would be an example of tax evasion.
The right business structure
Tax minimisation starts with the type of business structure you use to operate your centre and to distribute income and profits. Getting the right advice in this area is vital. Setting up the right structure for your business will, to a large degree, determine the tax planning that can be done, and therefore the amount of tax you can save over the lifetime of owning your centre or centres. Consider your business structure enables you to save $10,000 in tax per year then multiply this over 12 years – that equates to $120,000 in tax savings.
Your business structure is also important for protecting your assets. The right business structure will protect you from creditors or third parties being able to use your personal assets such as your home or motor vehicles to recover losses, unless of course personal guarantees have been provided or a director of a company or director of a trustee is found to be guilty of misconduct.
There are potentially significant tax savings to be had when exiting or selling your centre as well. The right business structure will determine your ability to access a range of concessions to keep the capital gain on the sale of your business to a minimum.
If you are thinking about changing your business structure, it may potentially be a complex and costly process, including the likelihood of incurring stamp duty and/or capital gains tax. The last Federal Budget announced a range of concessions for small businesses (those with a turnover of under $2 million – this may change to $10 million), to make it easier to change business structures without incurring capital gains tax.
Other more immediate tax minimisation strategies that you can utilize before 30 June 2017:
Instant deduction for assets less than $20,000
It may be timely to purchase new resources and equipment for your centre before 30 June 2017. If you are a small business entity, you can claim an immediate tax deduction for depreciating assets valued less than $20,000.
Maximise deductible super contributions
For centre owners and operators, it is worth considering the lower tax rate (15%) available in the superannuation realm to minimise your tax liability. Salary sacrificing strategies are available so you can minimise the taxable income of your centre and allocate funds to boost your superannuation. Be wary of caps that are set that on how much you can contribute to super before penalty taxes begin to apply.
Pay employee superannuation sooner
If your centre has sufficient funds in the account, you may like to pay the accrued superannuation of your employees before 30 June 2017 to claim a deduction. The funds need to be received by the super funds before 30 June 2017 to claim a deduction, so it is best to do this at least 5 business days before 30 June.
Write-off bad debts
If you have family accounts with outstanding debts, you can write them off and claim them as a tax deduction. Before doing this however, ensure that you have already undertaken all reasonable efforts to recover the amounts from the families.
This article was written by the Founder of Perris Knightsbridge Chartered Accountants, Peter Khalil who has a special interest in providing expert service to the child care sector.
Peter Khalil the Founder of Perris Knightsbridge Chartered Accounts – has a passion and drive to provide high quality accountant, tax and business advice to the child care Industry. Peter has been a child care owner for more than four years and has multiple centres around New South Wales.
Peter has extensive knowledge in accounting, taxation, audit and risk management within the child care Industry and can help providers devise a financial and strategic plan to minimise your child care centre’s tax obligations. During his career Peter has worked with distinguished organisations including the Commonwealth Bank; ING; AMP; Australand; Mirvac; Lindt & Sprungli; and Southcorp, delivering financial audit; risk management compliance; enterprise risk and process re-engineering services.
Peter's passion lies with small business clients especially child care, helping them make sense of an increasingly complex regulatory environment and putting them on a purposeful path of wealth creation and a secure financial future.
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