6 Achievable Strategies for Reducing Costs


Inflation, rising cost of living, interest rates; the news is full of headlines
highlighting the current economic climate and predicting what might be to come.
With prices of food, fuel, energy, and most essentials increasing, many
households are watching spending much more closely, while looking for ways to
cut costs.

Even more so, minimising costs will be essential if as a self-employed sole trader
or small business you are to survive this uncertain time and keep your cash flow
healthy. Being a small business can be a challenging endeavour, especially in an
economic climate where the cost of living is rising due to inflation and interest
rates. To remain competitive, it is important for businesses to find ways to cut
costs while also maintaining their quality of services or products. This article will
look at some practical strategies that you can utilize to reduce your operating
costs and increase efficiency.

  1. Identifying Costs – Whether it is your personal spending or the outlay of
    a major business, being honest about what your actual costs are is the
    first step. Understand existing expenses in all areas. What do you buy?
    How much do you pay? What costs have increased over the recent years?
    Evaluating where you are now and where you want to be is the best place
    to start. As a sole trader, consider creating a 12-month cash flow forecast
    to look at whether your expected income will exceed your predicted costs.
    If the figures don’t add up, you have time to act so you can stay profitable
    and competitive in the market. (check out our Budget and expense
    tracking tools)
  2. Cut expenses – Your initial identifying of costs will hopefully have
    highlighted some ways you are spending that you can straight away cut.
    Some examples might be regular payments that come out of your account
    for subscriptions or stock that you don’t use or had even forgotten you
    were paying for. Travel that is unnecessary, advertising that isn’t
    converting – what are the expenses that that you shouted straight away
    “Why are we still paying for that?”.
  3. Reduce Overheads – After finding the obvious unnecessary costs, or
    maybe you run such a tight ship that there was no excess to trim, it is time
    to look at the large costs that most businesses face; Rent and other
    utilities. Spending the time to compare your electricity, banking and
    telecommunications rates and fees can pay off in the long run.
  4. Seek better deals from current suppliers – Finding new suppliers can
    be time-consuming but why not ask your current providers if they can do a
    better deal. The first step is to review your supplier contracts carefully.
    Look for any areas where you could negotiate more favourable terms, such
    as payment schedules or delivery times. Once you’ve identified these
    opportunities, reach out to your suppliers and start a dialogue about how
    you can work together to improve the arrangement. Another strategy for
    getting better deals from your current suppliers is leveraging your buying
    power. As a sole trader, you may not have the same bargaining power as
    larger companies, but there are still ways to maximize the impact of your
    purchasing decisions.
  5. Increase Efficiency –As a sole trader, cutting costs can be an important
    way to increase profitability. There are several ways that you can do this,
    but one of the most effective methods is to increase your efficiency. By
    streamlining your processes and reducing waste, you will be able to save
    time and money while still delivering high-quality work. Sometimes as the
    business owner it is hard to see the forest for the trees, so why not ask
    your regular customers or staff what things they don’t think you need.
    Does no-one ever eat the side salad? Is no-one parking in the expensive
    carpark? Do the staff hate the annual Christmas dinner and would prefer a
    voucher? You might be surprised by the feedback you get. Another way to
    cut costs as a sole trader is by outsourcing certain tasks. If there are areas
    in which you lack expertise or experience, consider hiring a freelancer or
    consultant who can complete the work more efficiently than you could on
    your own. For example, here at Impact Taxation we provide tax planning
    advice to our sole trader clients. When the timing is right, we can help you
    change your business structure to achieve asset protection and tax
    savings at the same time. Some of our sole trader clients saved up to tens
    of thousands of dollars on tax in the first year when they changed their
    business structure.
  6. Automate Processes – One way to increase efficiency is to automate
    repetitive tasks. This could include using software tools or apps that help
    you manage invoices, track expenses or manage your social media
    accounts. Automating these tasks will not only save you time but also
    reduce the chances of errors occurring. For instance, Impact Taxation uses
    a unique tax return template to help our clients avoid missing any
    deductions. Templates and software could make your systems and
    processes much more efficient, saving you time, money and hassle leaving
    you to focus on what you enjoy about being in business.

In conclusion, cutting costs as a sole trader can seem difficult at first, but with a
little bit of creativity and hard work it is possible to significantly reduce costs.
Whether it’s switching to virtual office space, bartering services with other
businesses, or taking advantage of digital resources, there are multiple ways to
save money while running your own business. With careful planning and
dedication, you can create a budget that works for you and your business and
Impact Taxation & Financial services is just a phone call away – call now to see
how we can help you save on costs.


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10 things you should consider before buying a property

Are you considering buying a property? Do you know you could miss opportunities to save thousands, or tens of thousands of dollars if you don’t plan well before the purchase?

Below are a few key considerations:

1. How should you set up your loan structure? If you don’t have a loan offset account for a rental property, after you make extra payments directly to the loan account, you can only claim interest deduction on the remaining balance of the loan. For tax purposes, this deductible balance can’t be changed even if you redraw the overpaid amount later. A good loan structure could also help you to stabilize interest rate and speed up loan repayment by combining a standard variable loan (with an offset account) and a fix rates account.

2. Timing of renovation. You might want to do a renovation right after you have bought the rental property. But do you know for any genuine repair & maintenance included in the renovation, you can claim an outright deduction against the rental income when the property is available for rental? If the work is done before the date when the property is available for rental, you can only claim the deduction against future capital gain when the property is sold. Depend on when you are going to sell, it could take years or up to decades before you can claim the deduction.

3. How should you split ownership? You might want to share the property ownership with a family member. For tax purposes, the percentage of ownership is based on the legal title, regardless of who is paying more on the mortgage. If the property will give you a tax profit, you might want to allocate more
ownership to the low-income earner to utilize the lower marginal tax rate. If it is giving you a tax loss, you might want to allocate more ownership to the high-income earner to utilize the loss. The goal is for the family to pay minimum tax together.

4. Should you use a family trust to purchase the property? There are many pros and cons related to a family trust. The advantages include tax savings on rental profit or capital gain, asset protection and succession planning on family wealth. However, family trust can’t distribute losses. All losses are trapped in the trust to be used to offset future trust profit. Therefore, you can’t utilize any rental loss in a trust to offset other income such as salary & wages. Family trusts also attract high accounting fees on initial setup and annual fees on financial statements and tax returns. State governments also charge much higher land tax on family trusts.

5. Will the income level change in future years for different owners? You might want to forecast the possible income for different owners to understand total tax payment / savings related to the property. This could also impact on your decision making on point 3 and 4 above.

6. Understand when you can treat your property as main residence to receive an exemption on capital gains tax. When eligible, even if you have received rental income, you could still treat your rental property as main residence and receive the exemption. To be eligible, you will need to treat it as your main residence at the beginning. Please check out this ATO link: Treating former home as main residence.

7. Decide whether you need to purchase a depreciation report. Most taxpayers don’t know that the depreciation on the building will need to be added back to calculate capital gains tax when the property is sold. When the property is held for more than 12 months, after applying the capital gains tax discount of 50%, it will effectively cut the tax rate by half at the time of sales. This makes depreciation deductions desirable for high income earners. However, for low-income earners it might not be ideal to claim depreciation as a rental deduction since they could be paying more on capital gains tax in the future. It could get more complicated if the property is under joint ownership between high and low income earners.

8. You might want to consider Centrelink payments for future or existing owners. Most Centrelink payments are income and asset tested. Before attaching a rental property to a family member who is receiving, or plan to receive government benefits, you might want to check the testing thresholds first to see if the Centrelink payment will be impacted. This is also applicable when you are making distributions from a family trust to different family members.

9. Have you considered using your SMSF (selfmanaged super fund) to make the purchase of a rental property? There are a lot of tax saving opportunities with a SMSF since the income tax rate is only 15%. And the capital gains tax rate is effectively only 10% after factoring in the 1/3 discount. The major downside with a SMSF is normally you can’t get the money out until you retire or on compassionate grounds (SMSF does have more flexibilities compared to normal retail super fund. But the choices are still very limited). It could be expensive to set up and operate a SMSF too. There are also strict legal requirements on the trustees. Penalties on incompliance could be severe. Tax law around SMSF is very complicated too. You will need to find a good tax accountant specialized in SMSF to help you to understand the structure, also do a cost-benefit analysis before setting it up.

10. Consider internal ownership changes. For your existing rental properties, you can also consider whether you should transfer the ownership between family members, or between different business structures (this is not applicable for SMSF). You might want to do this when the income level changes with family members, or rental property changes between tax profit and loss. Before the change, you need to consider the cost of transfer including capital gains tax, stamp duty, conveyancer fees, etc. Again, a cost-benefit analysis is a must before the change.

Last but not the least, did you combine all the above strategies and compare your choices? If you haven’t yet, how would you know that you have picked the best strategy to minimize your taxes? We can help you to factor in all considerations, compare different scenarios, also present you with a Property Prepurchase Report with all our findings to help you to make a decision. Contact us today to book in a consultation with an experienced tax accountant!

This is general advice only and does not consider your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountant.

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