With the rising cost of living and increasing borrowing expenses, effective tax planning has never been more important. Understanding how to manage your tax obligations can help you retain more of your hard-earned money and provide greater financial resources to achieve your goals.
At Davidsons, we help businesses and individuals implement practical tax planning strategies that deliver real results. This article explains what tax planning involves, why it matters, and how it can benefit you.
Strategic tax planning explained
Tax planning is a proactive approach to managing your tax obligations effectively. It involves:
- analysing your financial situation
- strategising and forecasting
- implementing a plan to ensure you pay the right amount of tax
Good tax planning gives you a clear financial roadmap to follow. In our current challenging economic climate, it’s crucial to understand your current position and know what’s ahead so you can achieve financial success.
Is tax planning relevant to me?
The short answer is yes. If you lodge a tax return and receive a tax assessment, tax planning should be on your radar.
Tax planning is for you if you want to:
- maximise your after-tax dollars by minimising the tax you pay
- understand your future cash flow obligations
- ensure you comply with tax legislation and other regulatory requirements
- take time to reflect on the past year and plan for the year ahead
- sleep better at night, knowing your finances are under control.
Does business size matter when it comes to tax planning?
The importance of tax planning isn’t limited by size, type, industry or ability. For sole traders and small businesses, tax planning will give you greater certainty around your upcoming tax obligations (check out our sole trader tax planning example below).
Medium and large businesses with dedicated accounting teams can use advanced tax strategies to maximize available incentives, like strategically timing major equipment purchases to take advantage of tax deductions when they provide the most significant benefit.
At a minimum, tax planning can help you understand your future tax timeline: what taxes will you need to pay and when? This planning is critical to managing your personal and business cash flows. Without this knowledge and insight, you risk significant financial distress.
What does a tax planning strategy involve?
Tax planning starts with understanding your year-to-date performance and forecasting your profits and taxable income for the rest of the year. Whether you’re an individual, part of a family group, or a large corporation, the principles and key concepts remain the same.
The tax planning process explained:
1. Identifying one-off events
We identify and consider any significant events that occurred throughout the year that could impact your taxes. These might include:
- buying or selling property
- changes in trading conditions
- new business opportunities
- personal events like retirement or building superannuation.
Once identified, we factor these events into your forecast position.
2. Forecasting and strategy
Now the fun starts! After establishing your forecast position, we work with you to identify options to reduce, mitigate or defer your tax commitments. We consider the tax impacts of various strategies and work through different forecast scenarios to help you determine which strategies to implement.
Strategies we consider include:
- ensuring superannuation contributions are paid by year-end
- considering additional super contributions within caps and in line with your wealth creation plans
- writing off bad debts before year-end
- scrapping worthless stock and equipment of nil value before year-end
- taking advantage of immediate asset write-off concessions
- maximising prepayments subject to prepayment rules.
We also ensure you’re structuring your asset ownership and managing your flow of funds and transactions effectively throughout your structure. This includes addressing compliance obligations such as:
- signing off any trust distribution resolutions before 30 June
- reviewing and dealing with any Division 7A matters.
You can read more about these tax planning considerations in our article, ‘Tax planning strategies to action before 30 June 2025’.
3. Implementation
Based on your decisions, we will provide a clear action plan to implement before 30 June so you can finish the financial year calmly and in control.
Do I need an accountant to assist with tax planning?
Tax planning can be complex. Each client’s circumstances are unique, and every financial year brings new tax-related challenges and opportunities.
We recommend working with an experienced accountant to ensure optimal results. A key part of our service involves developing clear strategies that support your business goals so you can focus on running your business while we manage the tax complexities.
When should I start working on my tax planning strategy?
The most important thing to remember is that tax planning strategies need to be implemented well before 30 June each year. We recommend reaching out to your accountant at least 2-3 months before the end of the financial year to start discussing your strategy.
An example of strategic tax planning in action for a sole trader
Clients often ask if they’re too small to worry about tax planning. As mentioned earlier, everyone who pays tax can benefit from tax planning to ensure they’re in the best possible financial position.
Here’s an example demonstrating the advantages of sole trader tax planning:
Tax planning example: Kate the cleaner
Kate is a sole trader who started a full-time cleaning business in October 2024. She registered for GST in February 2025 as her business grew and her projected turnover exceeded $75,000 for the following 12 months. She has been able to offer lower prices to her clients as a result of her lower overheads.
Kate is unsure about her tax obligations for the financial year as she isn’t currently making any pay as you go (PAYG) instalments. She wants to make a superannuation contribution in the most tax-effective way possible and is unsure how running a business impacts her ability to contribute. Her equipment is dated, having been purchased second-hand when starting her business, and she’s uncertain whether she’ll have enough funds to reinvest in new equipment.
Kate’s current business records show:
- Total revenue to 30 April 2025: $110,000
- Total deductible expenses to 30 April 2025: $30,000
- Projected taxable profit for May and June 2025: $20,000.
As a sole trader, Kate must declare any profit from her business on her personal income tax return for the 2025 financial year. She’s concerned about having a large tax bill and isn’t sure how much money to set aside. She has the correct private health coverage to avoid the Medicare levy surcharge.
Key points from Kate’s situation include:
- Her business is experiencing significant growth.
- She could potentially grow her business by purchasing new equipment and claiming a tax deduction under the instant asset write-off rules.
- She could benefit from making a personal deductible superannuation contribution and claiming a tax deduction for those contributions.
Kate has made a year-to-date profit of $80,000. She has forecast a profit of $20,000 for the final two months of the financial year, totaling an annual forecast profit of $100,000.
Working with Kate, we’ve explored options to maximise her after-tax position for 2025 while helping her contribute to super and purchase new business equipment. By taking action before 30 June, Kate can reduce her personal tax bill by over $11,000:
| Scenario 1: Without changes | Scenario 2: With tax planning strategy | |
|---|---|---|
| Estimated revenue | $110,000 | $110,000 |
| Less estimate deductible | ($30,000) | ($30,000) |
| Add estimated profit for May and June 2025 | $20,000 | $20,000 |
| Estimated net profit | $100,000 | $100,000 |
| Deduction for purchase of new equipment | $0 | ($20,000) |
| Deduction for personal superannuation contributions | $0 | ($15,000) |
| Adjusted taxable income | $100,000 | $65,000 |
| Basic tax estimate* | $22,788 | $11,563 |
Kate needs to take action before 30 June 2025 to benefit from these tax savings. However, when lodging via a tax agent, her lodgement and payment aren’t due until May 2026, giving her time to plan for these cash outflows.
With this in mind, Kate can now be more certain about expected future cash outflows over the next 12 months.
Other tax planning strategies applicable for sole traders and small businesses could include:
- Claiming deductions for start-up expenses if restructuring or starting a new business
- Accessing the small business income tax offset
- Prepaying expenses (subject to eligibility rules)
- Revaluing stock and writing off obsolete stock
- Accurately tracking expenses for business-use items such as portion of motor vehicle use
- Writing off bad debts before year-end.
Need help with strategic tax planning?
Our team of experienced tax professionals can help you navigate the complexities of tax planning and develop strategies tailored to your specific needs.
You can reach out to us by:
- completing an enquiry form
- calling us on 03 5221 6399
- emailing via info@davidsons.com.au.
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Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.