Planning the key to effectively managing income at tax time
As the old saying goes, ‘‘cash is king’’.
There’s another saying in the business world, ‘‘what you can measure, you can manage’’.
At CooperAitken we believe our role is to not only take care of clients’ compliance and related taxation needs but to also challenge clients’ thinking to provide tools and strategies to assist with managing their business and cash flow.
Currently, of particular importance for dairy farmers is the timing of taxable income and managing the resulting tax payments.
With dairy payout having significant swings between the tax years, careful planning can result in both significant delays of tax payments and permanent tax savings.
For many farmers, current payout forecasts could lead to an approximate drop in taxable income of $1.85 per kilogram of milksolids between the May 2014 and May 2015 income years.
This drop in taxable income could continue into the 2016 tax year depending on the advance payments made to May 2016.
Although farmers are adjusting cost structures to assist with managing the drop in payout, a significant drop in taxable income will still result for many.
For decades there have been simple mechanisms for farmers to manage the timing of their income, and therefore tax payments through either the income equalisation scheme or the ability to defer fertiliser. Planning is essential in determining the correct basis of paying provisional tax.
Planning is also needed
for the future with the increase of income when the payout recovers.
Consideration on the appropriateness of your provisional tax payments is needed.
For many farmers your February 28, 2015 and June 28, 2015 tax payments should not be based on your 2014 income.
Instead, these payments should either be based on your 2013 year, or estimated 2015 income; otherwise you will be paying too much tax and waiting for a refund.
We consider you need these funds in your business to manage your cash flow.
Overall there are simple and effective mechanisms to assist in managing your tax affairs in changing income years.