How does this strategy work?
Each month you pay super for your employees.
9.5% of their wage.
For a quarterly payroll of $100,000, that’s $9,500.
Now your Employee Super Payments are typically due on 28th day of the following month after each quarter finishes.
For the quarter of March to June 2016, it’s due 28 July 2016.
But what if we we’re to pay that bill early?
Just one month early.
You’d get the tax deduction now, which is an additional 10 months of cashflow.
Here’s how the numbers pan out...
The company tax rate is 30%.
So this $9,500 Super Bill would reduce your tax by $2,850.
Option 1 (Without Tax Planning): Pay the $9,500 super bill on time in July 2016 aka NEXT financial year.
$9,500 Super Payment goes out in July 2016.
$2,850 Tax Deduction comes back in August 2017 (when you lodge your company tax return).
13 months later.
Option 2 (With Tax Planning): Pay the $9,500 super bill early aka THIS financial year.
$9,500 Super Payment goes out in June 2016.
$2,850 Tax Deduction comes back in August 2016.
3 months later.
Now a couple of grand extra cashflow for 10 months doesn’t seem like much.
But when you layer a few pre-payment strategies on top of each other, we’ve seen clients with an additional $10,000 - $40,000 cashflow.
That’s a game changing amount.
And with that, you can –
What do you need to implement this strategy?
When does the payment have to clear the account by?
You need to make your payment before business closes on 30 June. (It must have left your bank account.)
Can I pay more than one month’s superannuation payments early?
Yes you can, but we wouldn’t recommend going overboard.
You might accidentally go over your employee’s super contribution caps ($30k in a year if they’re under 49, and $35k in a year if they’re 49 or older).
Doing this would cost them up to 47% in tax on that super.
Can I prepay other expenses early to get the same effect?
Yes you sure can (so long as your business turns over LESS than $2,000,000 in a year).
And you’re not prepaying an expense for any more than 12 months.
NEXT STEPS: You can book in a Quick 10 Min Chat here with an Inspire Chartered Accountant to talk about Tax Saving Strategies that will work for you.
For every dollar in tax we save a small business, we give a family in need a days worth of access to life changing help. Here are some of the impacts -