Tax planning is becoming equally important as setting growth targets and profit forecasts. There is a simple reason for this, if you don’t plan your tax accurately, it could have a knock-on effect to everything else that you do.
Furthermore, with increased regulation, both on a local and international front, it is imperative to be thinking long term with any potential sale or write-down of assets that may affect balance sheet budgeting.
All this takes dedicated time and careful consideration. Having the right financial people in place is critical to any organisation. The same can be said for having the right software in place to help with this process.
“Tax planning definitely improves bottom line results by delivering savings to both shareholders and the company by reducing operating costs, improving cash flow, and lowering overall tax,” Siobhan Sellick, Business Advisory and Tax Director, Prosperity Advisers Group, says.
“For business strategies focussed on profitability and growth, tax planning is a critical component and, at a minimum, should be discussed and reviewed annually.
“Software does assist in calculating tax estimates, however, the primary blocker remains the need for manual data input and further, different options require separate calculations.
“An ongoing future focus is the need to develop technology, which assists with planning by removing the current reliance on manual input.”
Many big businesses, especially those trading overseas, can find their bottom line greatly affected by fluctuations in currency trading, new laws being implemented and current laws within their own country of trading being changed.
Therefore a degree of flexibility is needed in every quarterly budget to plan for any unexpected surprises.
“We need to understand the tax liabilities, minimise them wherever possible and include it in the forecasts,” Chad Russell, Business Advisory Partner, PKF, says.
“Clients with uncertain cash flows will often keep a portion of profits aside each week or month to fund the tax liabilities that will arise in the future. This protects them against being unable to pay later down the line.
“For those businesses that are undertaking research and development, the offset coming back into the cash flow can often be a major source of funding the next stage, so understanding how this works is critical.”
Other key business issues that require careful business planning include dividends to owners and shareholders, purchase and sale of assets, bonuses for employees, and mergers and acquisitions.
Most of these will be known in advance, however, even if you take into consideration that you have forthcoming allocated outflows to be calculated, how much you actually outlay can depend on a myriad of factors.
One of the main ingredients to help you structure your company’s finances accordingly and accurately is utilising the rights tools to help you plan budgets.
“Most of our clients use cloud-based accounting,” Trevor Bruger, Tax Advisory Principal, MBA Partnership, says. “It allows us to access the file quickly and make changes live as we need to.
“When we make changes live the file is always accurate and up to date. This allows us to analyse the most recent and reliable data when making important decisions with clients.
“We are encouraged to invest in best-of-breed technology to enable effective solutions for our clients. Within the Australian accounting landscape there are many new innovations with technology and we actively pursue new systems that will improve our internal business functions along with improving our clients’ experience.”
But there is no doubt Australia’s tax system isn’t the easiest to navigate. There are almost yearly changes to an array of regulations and we have seen changes to superannuation, company tax rates and individual tax rates change in recent times. It is almost never ending.
The constant need by politicians to re-jig our system can cause problems for businesses that have structured tax offsets and projected losses or profits, if there is uncertainty in the system. It also affects confidence in the system.
“Our tax system is overly complicated and a lot of non-compliance would simply be because of a lack of understanding or mis-interpretation,” Russell says. “If the system was simpler, the software could better calculate tax liabilities, much like they can with GST, and planning would become easier.
“Live data files are helping by providing more timely and accurate data so that we can get an understanding of the tax position earlier and plan for it.”
Indeed there is no reason to antagonise the Australian Taxation Office (ATO). Increasing compliance and sophisticated software means you are very likely to be caught out quickly if you try to manipulate the system.
“At all times, it’s important for both our clients’ businesses and ours’ that they are on top of their tax reporting and tax payment obligations,” Sellick says.
“A client whose record reflects timely reporting and payment will stay off the ATO’s radar. If you are viewed as a good taxpayer, will likely assist with requests around payment plans or remission of interest or penalties if ever required.
“For our company, having tax-compliant clients means our good lodgement rating continues and we remain off the radar for tax agents.”
Bruger agrees that staying ahead of the tax game, which is manageable through good tax planning, is an important strategic consideration for any business.
“The ATO Commissioner has voiced his concerns recently regarding tax compliance and has held tax agents partly responsible,” he says. “The ATO now has powerful access to information and uses technology to data match.
“We explain to our clients that the ATO uses technology to benchmark the performance of their business and if the KPIs fall outside industry averages they can expect a ‘please explain’.
“The more compliant our clients are, the less time we need to spend in communication with the ATO. This allows us to use our resources adding value to our clients.”
Download our free eBook:
To learn from the experts on how technology is transforming business strategy, download our free eBook “The future of tax”.
ONESOURCE: Manage your tax and accounting reporting with integration into your existing systems including excel
Thomson Reuters ONESOURCE™ provides transformative tax technology that powers smarter decisions for tax & accounting professionals worldwide. Backed by our trusted experts, we know where trends in technology are headed — and how tax departments can use them throughout the tax lifecycle.
Discover why Thomson Reuters ® ONESOURCE ™ is the industry’s most powerful corporate tax and accounting technology platform.