Putting in place simple but smart tax strategies as the end of the financial year looms can make a big difference to the bottom line for veterinarians. By Clea Sherman
With so many things to manage when running a business, vet owners can find it challenging to stay on top of financial affairs. Here, the most effective thing you can do is to seek the advice and guidance of a professional who understands your business. While the specific actions you take depend on your situation, there are some general steps to optimise your results at tax time.
According to Paul Catanzariti of BOQ Specialist, a key strategy for veterinarians is to prepare early rather than leaving everything to the last minute as the end of the financial year (EOFY) approaches.
“Generally speaking, you should have relevant information and paperwork ready and meet with your accountant prior to 30 June to see what needs to be done before the end of the month,” says Catanzariti, who is a financial specialist with over 20 years’ experience.
When you meet with your accountant or financial advisor, show up armed with profit estimates for the year and information relating to any debts as well as amounts your business is owed. You should have documentation relating to your Business Activity Statements, your sales transactions and your expenses so your accountant can clearly see your financial position.
During the year, “business owners often make the mistake of looking at their profits without taking tax into account,” shares Emma Louis-Renshaw of the taxation and consulting company, RSM Australia. “This is where they can fall into trouble.”
At all times, your business should be working with those responsible for managing its finances to make sure there is money put aside for tax payments. This will go a long way to reduce stress when the tax bill comes in. To stay in control, you can also speak to your accountant or financial planner about making regular PAYG-style payments based on forecasts of your annual earnings.
Look for ways to minimise tax
By being proactive ahead of time, you can make a plan for increasing your tax deductions. This could involve making pre-payments on loans or leases or writing off bad debts.
Many of the costs of running a vet practice can potentially be written off as tax deductions, including insurance policies, utility bills, subscriptions and business-relevant training courses.
“You can also talk to your advisor about superannuation payments for your employees,” says Louis-Renshaw, who is an assistant manager within RSM Australia’s business advisory department. “These payments can be tax deductible so it can make sense to plan how and when you will make the contributions.”
Personal superannuation payments are also tax deductible to a point. Both Louis-Renshaw and Catanzariti suggests speaking with your accountant or financial planner for specific advice about how boosting your own super can benefit you at tax time.
When it comes to business loans, veterinary practice owners may be eligible to claim tax deductions on the interest charged on repayments. “You should also be able to claim deductions based on the depreciation in value of your business assets,” says Catanzariti, who has been helping vets with loans and financing for over 15 years.
Spend, spend, spend
Of course spending without good reason is never advisable. However, if your business has excess cash, the weeks before tax time can be a good time to spend it.
If you purchase a vehicle, a new machine or a piece of equipment up to the value of $20,000 before 30 June this year, it will likely be eligible for a tax deduction, so long as it is used or ready for use before the end of the financial year.
Eligibility applies to items such as computers, waiting room furniture and anything else that can be considered an asset. Should you be considering making a big-ticket purchase, upgrading or replacing existing equipment, speak with your advisor to make sure you can include it as a tax-deductible business expense.
Other business expenses are also tax deductible. “Marketing costs can also be deducted so if you are planning on running an ad campaign, it might make sense to outlay the funds before the end of the financial year,” suggests Louis-Renshaw.
By now, the financial transactions of your practice should be managed electronically via a system such as MYOB or Xero. As tax time nears, if you haven’t already done so, Louis-Renshaw recommends upgrading to a cloud-based system.
“Bring everything into the cloud so you don’t have to worry about backing up file-based data,” says Louis-Renshaw. “With these systems, you can see data and reports in real time and so can your bookkeeper or accountant.”
Louis-Renshaw adds that record keeping is important to ensure tax compliance. “You should always retain source documentation for five years in case you have to substantiate any claims. As much as possible, keep electronic copies of documents relating to your tax expenses.”
Plan for the future
The EOFY is an excellent opportunity to familiarise yourself with your profits, losses and overall income. This will provide you with an understanding of where your business stands financially and will lay a foundation for forward planning.
Vet practices can also consider revising their prices and staff salaries around June/July. “Take a look at which parts of your business are earning you the most money and also review how other clinics are charging, earning and profiting,” suggests Louis-Renshaw.
You can conduct your own research about how other businesses set their pricing and pay their staff via a platform, such as www.benchmarking.com.au. At tax time, you may wish to review your business structure. Rolling over into a different structure may help you minimise tax in the coming financial year so speak to your advisor about the right strategy for your practice.
As a business advisor who works with vet practices and many other small businesses, Louis-Renshaw also reminds directors that tax time is a good time to look forward to review your retirement plan, even if it is a long way off. “Look at your exit plan, whether you want to sell, hand over to another vet or otherwise. Have a strategy in place to work towards.”
In Catanzariti’s experience, it is essential to involve the right people at tax time. “I often come across vets with time management issues. They’re busy running their practice and they struggle to find the time to deal with paperwork. This is why having a good bookkeeper or practice manager is so important.”
As the end of the financial year approaches, take a step back from the day-to-day and see how your business is operating. Look at cash-flow planning, budgeting, allocating funds for future obligation and you will be able to create a financially sound business in the next financial year and beyond.