Search form

  • Existing customers: 131 436 | General Enquiries: 1300 092 969 – 9am to 5pm, M-F

How taxes affect your business cash flow

How taxes affect your cash flow

Your business tax obligations can have a huge impact on your cash flow and profitability if not adequately addressed. This is a particular concern for smaller businesses, which can be most affected when a large and unexpected tax bill arrives. Plan ahead now to make sure there are no unpleasant surprises at the end of the financial year. Here’s how.

Understanding your tax requirements

Once your business has been registered with an ABN, the next step is understanding how, and how often, you must report and pay your various tax obligations. For most businesses, this will include goods and services tax (GST) and pay-as-you-go instalments (PAYG). The ATO’s ‘PAYG withholding’ mechanism directly affects your ongoing business cash flow, as it is the amount of money that is withheld from regular outgoing payments – in most cases, employee wages and salaries – and sent directly to the ATO, typically to meet income tax requirements.

Other taxes that should factor into your cash flow analysis include fringe benefits tax (FBT) and luxury car tax (LCT). These are all reported within your business activity statement (BAS), which must be lodged with the ATO after each reporting period. Normally, each period is a financial quarter, so it’s best to plan your business spending around this three-monthly window. Another tax to be aware of is capital gains tax, which can be applicable if you make a profit from selling your business investments.

It’s important to remember that tax requirements are subject to change. Be sure to check the ATO website often to stay on top of your obligations.

Reducing tax burden via deductions and credits

There are many business expenses you could claim in the profit-and-loss section of your tax return to reduce your reportable income, and hence your income tax. These could include ongoing expenses such as power usage, telephone and internet, and non-ongoing items such as training courses and office and computer equipment.

If you are self-employed, you can claim tax deductions for super contributions. Or if you are a company that pays tax on shareholder dividends and has a marginal tax rate under 30 per cent, shares that pay ‘franked’ dividends can be useful as ‘tax effective’ investments.

Be wary of tax minimisation schemes

There’s nothing wrong with minimising your business tax obligations as long as it complies with the letter of the law. You should, however, try to avoid so-called ‘tax avoidance schemes’, which typically utilise complex transactions, such as moving money through several entities, to defer or avoid tax obligations. Keep it simple, and keep it above board.

Tax time is rarely something we look forward to, but with professional advice and planning, there’s no reason for it to have a negative impact on your business’ finances.

Why Speak to an Adviser?

  • Tailored expert advice with your best interests at heart
  • Get the right Resilium Insurance suited to your needs
  • Personalised service from quotes to claims

 Find Your Local Adviser

Sorry, invalid location.[?]