In the recent federal budget the Government made a few announcements that could have an impact on child care providers. The most significant promise was $37.3 billion in means-tested Child Care Subsidy and the removal of regulation that hinders providers in offering more flexible hours from July 2018.
This potentially opens up an opportunity to increase revenue for child care providers. However, with greater provision of care come greater costs for the provider which may make expansion unappealing. This could be counterbalanced by child care providers reducing their tax bills.
There are no doubt some efficient and legal ways to minimise tax for child care providers.
Restructure your business
The type of business structure you use to operate your centre and to distribute income and profits determines the level of tax you can save. The right business structure can potentially save operators hundreds of thousands in tax over the lifetime of the business.
There are potentially significant tax savings to be had when selling your centre as well. The right business structure will determine your ability to access a range of concessions to keep the capital gain on the sale of your business to a minimum.
As well minimising your tax your business structure is important for protecting your personal assets. The correct business structure could shield your personal assets such as home, vehicle etc. from creditors or third parties in the event of insolvency or bankruptcy.
Changing your business structure could be a complex and costly process that incurs stamp duty and/or capital gains tax however the last Federal Budget announced a range of concessions for small businesses to make it easier to change business structures without incurring capital gains tax.
Good cause for investment
Owners of small businesses like child care centres will enjoy another year of instant tax deductions. Businesses that turnover less than $10 million per year will be able to immediate write off expenditures up to $20,000. A perfect reason to invest in new resources and equipment that could help improve the profitability of your business and attract new families.
This is flagged in the federal budget to revert back to $1,000 from 1 July 2018. There is a possibility it could be extended but it isn’t a guarantee so if you’re thinking of speculating on some new equipment now is the time to move.
Minimising centre tax liability via the lower tax rate (15%) available in the superannuation realm is a worthwhile consideration for owners and operators. Utilising salary sacrifice strategies can minimise the taxable income of your centre and allocate funds to boost your superannuation. However, be wary of caps that are set that on how much you can contribute to super before penalty taxes begin to apply.
Claim a superannuation deduction
Your centre could claim a superannuation deduction but you have to be quick. If your centre has sufficient funds in the account it could be an idea to pay the accrued superannuation of your employees before 30 June 2017. Doing this will enable you to claim a deduction but the funds have to be received by the super funds before 30 June 2017 to claim so pay the balance at least 5 business days before 30 June.
Write-off bad debts
If you have family accounts with outstanding debts, you can write them off and claim them as a tax deduction. Before doing this however, ensure that you have already undertaken all reasonable efforts to recover the amounts from the families.
There are many ways to minimise your tax liabilities completely legally but to stay on the right side of the ATO getting good advice is crucial.
First published in SavvySME
Peter is the practice Principal, and for over 16 years has been able to deliver a new multi-disciplined approach to helping small business, translating the skills, experience and background from working with some of Australia’s largest organisations into tangible strategies that have delivered exceptional value to small business and SMEs.
Peter is a member of Chartered Accountants Australia & New Zealand (CAANZ) and the National Tax & Accountants’ Association (NTAA)