Yesterday I sat down with my accountant to do some year-end tax planning. To me, this is one of the most important meetings you can have all year. And if you're not doing this, then you either need your head read – or you need another accountant.
That's because 30 June is like D-Day. It rolls around every year and the decisions you make before this day can make or break the cash flow in your business. These decisions can determine whether or not you are lumped with a whopping tax bill that can be so debilitating it can set your business back for months, sometimes years. Or it can result in a tidy refund so you find yourself with the nice surprise of having extra funds to play with.
It's a numbers game
After all, tax is just a numbers game. And the rules are constantly changing. You only have to look at the constant evolution of superannuation requirements for evidence of that. Just blink, and you'll discover that the government has mandated brand new contribution caps.
The rules, in some cases, are simply confounding. Payroll tax. Need I say more. For those of you who don't yet have the pleasure of paying this tax, you get taxed EXTRA when you hire more people and provide more jobs to the Australian economy. (Payroll tax thresholds vary from state to state but the mere concept is just nuts. Whoever invented it must have lived in a parallel universe where business owners had to be punished for providing jobs for more people.)
Of course, don't get me started on capital gains tax, which applies when you realise a gain (profit) on the sale of anything from an investment property, to shares, to your business. That's right, ladies and gentlemen, let's say you start your business with nothing (which many of us do) and build it up to a successful entity through lots of blood, sweat and tears. Not only have you paid company tax, income tax, and the inexplicable payroll tax over the years (plus every other tax that's levied on small businesses), you then may get the pleasure of paying capital gains tax when you sell your business. There are some small, but potentially complicated, concessions to this. What a surprise. So you need the right guidance from your accountant here.
I know these taxes are not new. Capital gains tax has been around since that fateful day on 20 September 1985. Payroll tax has been charged by State Governments since 1971.
But just because they've been around for ages doesn't mean they make sense. It's one of those quirks of life. Like the ongoing popularity of Crocs as fashionable footwear.
Anyhow, it comes as no surprise then that one of the most important people in your life should be your accountant. Most of us would never be able to navigate the tax system without them. Or we'd bumble through and pay way too much tax, if only for the simple reason that it takes a superhuman effort just to stay on top of what is deductible and what is not (a concept that seems to change depending on which party is in Government, the state of the economy, and whether Venus is about to transit across the sun.)
Your accountant is the one who should guide you through what is undoubtedly one of the most complex tax systems in the world. In many ways, this relationship is like marriage.
1. You need the right fit
The process of choosing your accountant is a bit like dating. If you're lucky enough to find The One first off, that's fantastic. But, for most people, you probably need to sample a few relationships before you find the right fit – someone who understands your needs, values and goals. Similarly, it's really important not to "settle". Because, like the relationship with your life partner, if you do this, it could hold you back. Your accountant might be doing an adequate job, but if they aren't really the one for you, you'll never reach your potential in business.
30 June is like D-Day. It rolls around every year and the decisions you make before this day can make or break the cash-flow in your business.
2. Never assume they'll do it all
Just like a marriage, it's all about communication. Sure, it would be great if our accountants could read our minds and be proactive with amazing advice that will help us all build wealth and minimise our tax bill. But, unlike a marriage, they have plenty of other clients they have to service. Sometimes, hundreds of them. And that means you're not always top of mind.
If your accountant isn't quite paying you the attention you deserve, you should be the proactive one. Ideally, they should be doing more than just filling out your business activity statement every quarter. Help them out by clearly identifying your business and financial goals so they have a firm understanding of what you want to achieve. If they still don't provide you with useful advice and smart recommendations, it's time for a new accountant.
3. Getting intimate
Chances are that you'll share intimate details about your personal life with your accountant. That's because your hopes, dreams and finances are usually inextricably interlinked. If there's any chance of marriage, divorce or children, you need to plan for this - and your accountant is likely to be involved in this process. They are possibly even more useful than a priest, family member or counsellor in these situations.
While it doesn't sound particularly romantic to include your accountant in these major life milestones, welcome to the reality of the Australian tax system. It's complicated, it's an administrative burden, it often doesn't make sense. But it's here to stay. Good luck!