Tax planning gives small-business owners time to understand their likely tax position before important deadlines pass. It involves reviewing the year’s financial results, checking available concessions and deciding whether any genuine business transactions should be completed before 30 June.

This guide explains a practical tax-planning process for Australian small businesses and startups. It covers records, business structures, super contributions, equipment purchases, family arrangements, and government super incentives without treating any strategy as suitable for every business.

Disclaimer: This article provides general information only. Tax outcomes depend on your circumstances, so obtain professional advice before implementing a strategy.

What Is Tax Planning?

Tax planning is the process of reviewing your financial position and making lawful decisions that may affect when and how much tax you pay.

It can involve:

Forecasting taxable income
Identifying eligible deductions
Reviewing the timing of business expenses
Making appropriate super contributions
Considering available tax concessions
Preparing for future payment obligations

Some measures reduce taxable income for the current year. Others defer tax or affect deductions over several years. The purpose is to reach the correct tax outcome while supporting the business’s wider financial goals.

Why Is Tax Planning Important for a Small Business?

Tax planning gives a business a clearer picture of what it has earned, what it may owe, and how much cash will remain after meeting its obligations.

Its main benefits include:

A more accurate tax estimate: The business can prepare for its likely liability instead of waiting for the return to be completed.
Better cash-flow management: Owners can reserve enough money for tax, GST, super and payroll obligations.
More informed spending: Proposed purchases can be assessed on their commercial value and tax treatment.
Fewer last-minute problems: Missing records and reporting errors can be identified before they delay the return.
Greater certainty: Owners can make decisions using updated figures rather than assumptions.

Tax planning cannot guarantee a lower bill. Its value lies in reaching the correct outcome and making financial decisions with enough time to consider their consequences.

When Should a Business Start Tax Planning?

Tax planning should take place throughout the year, with a detailed review completed before 30 June.

Additional reviews may be needed:

When starting or buying a business
After a significant change in revenue or profit
Before purchasing an expensive asset
Before changing ownership or structure
Before making a large super contribution
When employing a family member
Before issuing or transferring company shares
Before selling a business or major asset

The earlier the review begins, the more time the owner and adviser have to confirm eligibility, prepare documents, and complete transactions correctly.

How to Do Tax Planning: A Step-by-Step Process

Effective tax planning begins with accurate financial information. From there, each part of the business can be reviewed separately to identify obligations, deadlines, and legitimate planning opportunities.

Step 1: Bring Your Records Up to Date

Start by reconciling the business’s accounts and confirming that transactions have been recorded correctly.

Review:

Sales and other income
Customer invoices
Supplier bills
Operating expenses
Asset purchases and sales
Employee and contractor payments
Super contributions
Loan balances
GST records
PAYG instalments
Owner withdrawals
Company dividends or trust distributions

Keep documents that explain what each transaction was, how much it cost, and how it related to the business. Depending on the claim, this may include invoices, receipts, contracts, bank statements, logbooks, and payroll records.

Step 2: Estimate Your Taxable Position

Use the updated accounts to forecast the business’s taxable income for the full financial year.

Taxable income may differ from accounting profit because adjustments can be required for:

Private expenses
Non-deductible expenditure
Depreciation
Capital purchases
Trading stock
Prepayments
Capital gains and losses
Bad debts
Entertainment expenses
Carried-forward losses

Estimate the resulting tax and compare it with PAYG instalments already paid. This shows whether the business may have an additional amount to pay or whether its instalments may have covered most of the liability.

Step 3: Review Your Business Structure

Your structure determines who reports the business income and how that income is taxed.

Sole trader: The owner reports net business income in an individual tax return.
Partnership: Each partner reports their share of the partnership’s net income or loss.
Company: The company reports and pays tax on its taxable income. For 2025–26, qualifying base-rate entities are generally taxed at 25%, while other companies are generally taxed at 30%.
Trust: The trustee or beneficiaries may be assessed on trust income, depending on the trust deed, resolutions and tax law.

A company’s tax rate is not necessarily the final rate applied to profits because additional personal tax may arise when dividends are paid. Changing structures can also trigger tax, duty, and legal costs.

The Australian Government’s business structure guidance explains the main characteristics of each option.

Step 4: Review Super Contributions

Concessional super contributions generally include employer contributions, salary sacrifice and personal contributions claimed as a deduction.

For 2025–26, the general concessional contributions cap is $30,000 per person. It applies across all funds and includes compulsory employer contributions.

Before making an additional contribution:

Confirm contributions already made during the year.
Check whether unused cap amounts from earlier years are available.
Consider whether Division 293 tax may apply.
Confirm that the business or individual has enough cash.
Allow time for the fund to receive the payment.

Unused concessional cap amounts may be carried forward for up to five years when the person’s total super balance was less than $500,000 at the previous 30 June.

A person claiming a deduction for an eligible personal contribution must give the fund a valid notice of intent and receive its acknowledgement. Money contributed to super is generally preserved until a condition of release is met.

Check the ATO’s current super contribution caps before contributing.

Step 5: Consider Necessary Equipment Purchases

For 2025–26, an eligible small-business entity using the simplified depreciation rules may immediately deduct the taxable-use portion of an eligible asset costing less than $20,000.

The business generally must:

Have an aggregated annual turnover below $10 million
Use the simplified depreciation rules.
First, use the asset or install it ready for use by 30 June 2026
Use the asset for a taxable business purpose.
Keep evidence of its cost and use

The threshold applies separately to each asset. For businesses entitled to claim GST credits, the relevant cost is generally calculated without the claimable GST.

Eligible assets costing $20,000 or more generally enter the small-business pool. Cars and certain excluded assets may be subject to different rules.

An immediate deduction reduces taxable income only. The purchase should still meet a genuine business need and fit within the available budget.

Step 6: Complete Family Trust Distributions Properly

The trustee of a discretionary family trust may distribute income among eligible beneficiaries in accordance with the trust deed.

Trustees generally need to make valid distribution resolutions by 30 June unless the deed requires an earlier date. The resolution should clearly identify the beneficiaries and their entitlements.

The final tax outcome may be affected by:

The terms of the trust deed
The type of income being distributed
Capital gains and franked-distribution rules
Personal services income provisions
Section 100A reimbursement-agreement rules
Who receives or benefits from the distribution

Distributing income to a lower-income family member is not enough on its own. The arrangement must be legally effective, properly documented, and consistent with how the money is handled.

Special tax rates also apply to most unearned income received by children under 18, subject to limited exceptions.

Step 7: Pay Family Members for Genuine Work

A spouse or child may be employed by the business when they perform real and necessary work.

Their pay should be reasonable for:

The duties performed
The hours worked
Their skills and experience
The market rate for comparable work

The business should keep employment agreements, timesheets, payroll records, and proof of payment. PAYG withholding, Single Touch Payroll, super guarantee, and employment law obligations may also apply.

Payments above a reasonable amount may not be fully deductible. The arrangement should be treated in the same way as employment involving an unrelated worker.

Service businesses must also consider the personal services income rules. These provisions may prevent income generated mainly by one person’s skills or efforts from being split among family members through wages, companies or trusts.

Step 8: Treat Different Share Classes as an Advanced Strategy

A company can have different classes of shares with distinct voting, capital, or dividend rights.

Different classes may support genuine commercial purposes, including:

Bringing in an investor without transferring control
Creating an employee equity arrangement
Giving founders different voting rights
Supporting ownership succession

They should not be treated as a simple income-splitting tool.

Any dividend must comply with the company constitution, the rights attached to the shares, the Corporations Act and applicable tax rules. Franking-credit streaming and anti-avoidance provisions may restrict arrangements designed to direct tax benefits to selected shareholders.

Issuing or transferring shares may also trigger capital gains tax, value-shifting rules, duty, and legal consequences. Tax and legal advice should be obtained before changing a company’s share structure.

Step 9: Check Your LISTO Eligibility

The Low Income Super Tax Offset, or LISTO, is a government payment made to an eligible person’s super account. It offsets some or all of the 15% contributions tax paid on concessional contributions.

For 2025–26:

Adjusted taxable income must generally be $37,000 or less
The maximum payment is $500
Concessional contributions must have been made
At least 10% of total income must generally come from employment or carrying on a business
Other eligibility conditions apply

The ATO generally calculates LISTO after receiving the person’s tax return and contribution information from their super fund. A separate application is not normally required.

Business ownership alone does not establish eligibility. Passive dividends or trust distributions may not satisfy the employment-or-business-income requirement.

Step 10: Check the Government Super Co-Contribution

The government co-contribution may be available when an eligible lower- or middle-income person makes a personal after-tax super contribution.

For 2025–26:

The maximum co-contribution is $500
The maximum may be available when total income is $47,488 or less
A $1,000 personal after-tax contribution is generally required to receive the maximum
The payment reduces as income increases
Eligibility ends at total income of $62,488

Age, income composition, total super balance, contribution cap and residency requirements also apply.

A contribution claimed as a personal tax deduction does not qualify because it becomes a concessional contribution. LISTO and the co-contribution may both apply in the same year because they relate to different types of contributions.

What Does a Good Tax Plan Look Like?

Sarah operates a marketing company expecting taxable profit of approximately $140,000 for 2025–26. Her husband performs regular administrative work, and the company needs to replace an unreliable laptop.

Before 30 June, Sarah and her adviser:

Reconcile the company’s accounts
Estimate its remaining tax liability
Confirm its company tax rate
Review Sarah’s existing super contributions
Assess the proposed laptop under the depreciation rules
Confirm that her husband’s wages reflect his work
Set aside cash for tax and GST

Each decision reflects something the business genuinely needs or has already done. The plan does not depend on unnecessary spending, artificial distributions, or unsupported family payments.

Common Tax Planning Mistakes to Avoid

Most tax pain is self-inflicted, and these are the errors that cost the most. None of them simply repeats a caution already built into the steps above:

1. Confusing cash flow with taxable profit

Bank balances do not show taxable income. Loan proceeds, asset purchases, unpaid invoices, and GST can create significant differences between cash and tax results.

2. Forgetting non-income-tax obligations

A business may also owe GST, PAYG withholding, fringe benefits tax, payroll tax, or employee super. These liabilities should be considered separately from income tax.

3. Relying on last year’s thresholds

Contribution caps, depreciation measures, and government incentives can change. Confirm the rules for the relevant income year.

4. Waiting until the return is due

Preparing a tax return records what has already happened. It may be too late to complete transactions intended to affect the previous financial year.

5. Making major decisions without advice

Restructurings, trust distributions, and share changes can have consequences outside income tax. Obtain advice before completing the transaction, not after it has occurred.

Build a comprehensive business tax plan with Coleman Financial Group

These steps give you the shape of good tax planning, but the right mix depends entirely on your business: your profit, your structure, your family, and your stage of growth. What saves one owner thousands does nothing for the next, and with the rules shifting, last year’s plan may not be this year’s best move.

That is where good advice pays for itself. At Coleman Financial Group, our team of business accountants helps small business owners and founders work through every step above, whether that means sorting out your business structure, setting up an SMSF to take control of your super, or simply making sure the business is not leaving money on the table each year.

The best time to start is now, not next June. Call us on 1300 84 84 21 or get in touch to book a conversation, and let’s build your plan, step by step.

FAQs

Is there a tax offset just for small businesses?

Yes. The small business income tax offset gives unincorporated businesses, meaning sole traders, and individuals with a share of small business income from a partnership or trust, a rebate of 16 percent on the tax owing on that income, capped at $1,000 a year. It applies to businesses with an aggregated turnover under $5 million, and the ATO works it out automatically when you lodge. Companies do not get it, since they already have a lower company tax rate.

When does my business have to register for GST?

Once your annual GST turnover reaches $75,000, or you expect it to, registration becomes compulsory, and you must charge GST on your sales. Below that figure, it is optional, though some businesses register voluntarily to claim GST credits on large startup costs. The risk of registering late is real: cross the threshold without noticing, and you can end up owing GST on past sales you never collected from customers.

Do I pay tax on the profit I leave in the business?

In a company, yes, but at the company rate rather than your personal one. Profit a company retains rather than pays out is still taxed at 25 to 30 percent, which is often lower than the top personal rate. That gap is one reason growing businesses incorporate: it lets them reinvest profit while it is taxed more lightly, with personal tax only arising when money is later drawn as a wage or dividend.

Are accountant and tax agent fees tax-deductible?

Yes. The cost of managing your tax affairs is deductible by the business, including fees for preparing and lodging returns, tax planning advice, and costs of dealing with the ATO in an audit or dispute. In practice, this softens the real cost of good advice, since a portion comes back through the deduction. Keep the invoices with your records like any other claim.

What are PAYG instalments and why did the ATO put me on them?

PAYG instalments are prepayments toward your expected tax bill, paid quarterly, so you are not hit with the full amount in one lump at year end. The ATO enters a business or individual into the system automatically once reported business or investment income passes a set level. The instalments are credited against your final tax when you lodge, so they are not an extra tax, just the same tax paid in advance.

What happens if my business cannot pay its tax bill?

Contact the ATO early, because options exist and they shrink the longer you wait. Eligible businesses can arrange a payment plan that breaks the debt into smaller instalments, usually with an upfront payment, though a general interest charge applies until the balance is cleared. Ignoring a bill is the costly path, as interest builds and enforcement follows, whereas a registered tax agent can help negotiate terms before the due date passes.