IT companies need very comprehensive tax planning to improve their financial performance. On top
of that, they have to stay compliant with existing ATO guidelines to avoid any legal penalties and legal
issues. In this blog, we will take a quick look at some very effective and simple tax planning tips that
can help any IT company with tax optimisation.

So let’s get started.

5 Tax Planning Tips for IT companies

1. Know your Tax Rates and Structures

There are multiple Corporate tax rates for IT companies, depending on their annual turnover. For
example, if your IT company’s aggregated turnover is above $50 million and passive income is less
than 80% of that turnover, your income will be taxed at 25%. For companies with turnover above $
50 million, the rate is 30%.
Similarly, your business structure plays an important role in your tax planning. Each business
structure is taxed differently. Here’s how your tax rate will be, depending on it.

• Sole Trader: For sole traders, their income will be taxed at the personal tax rate. This could go
  up to 45%.
• Partnership: Here, each partner pays tax on their profit share, and the rate will depend on
  the partner’s individual income. Their income will be taxed at a personal tax rate.
• Company: If you are a registered company, you will be taxed at the corporate tax rate. There
  are no tax-free thresholds for you.
• Trust: For trusts, the income is distributed to beneficiaries. Later, they are taxed at their
  marginal rates.

So, if you feel you can benefit from restructuring your business structure, feel free to do it. But
before doing so, we strongly recommend you consult tax planning and accounting experts like Nanak
Accountants.

2. Take benefit of Deductions and Credits

Super contributions are only deductible when paid and not when incurred. But you can do it only if
you make payments before June 30 every year. When you do this, you can claim deductions for a
particular financial year. It’s important to note here that the Super Guarantee rate went up to 11.5%
from July 1, 2024.

You can also benefit from Instant Asset Write-Off. Under this option, IT companies can deduct the
cost of depreciating assets right away. The only criteria? The depreciating asset should be eligible for
it, and the cost of the asset should be below $30,000. Also, the asset must have been first used or
installed and ready for use by June 30, 2024.

Then, there is an option to claim depreciation deductions. You can claim depreciation on your
business assets like computers, servers, and other relevant office equipment. But do not forget to
keep records of these purchases. You might need them to prove that your claims are legit if ATO
comes knocking! Our experts at Nanak Accountants specialise in helping IT firms with depreciation
deductions.

IT companies get the benefit of R&D Tax Incentives. Here, you can claim it and can use it to offset
your expenses for eligible R&D activities.

3. Manage your Finances like a Pro

Accurate financial management can also help you optimise your taxes. For example, you can take
advantage of income deferral. How it works? Well, it’s pretty simple. You can differ your income to
the next financial year. This can bring down your current year’s income. You can do so by delaying
invoicing or receiving payments after June 30. But make sure you consult a financial management
expert like Nanak Accountants to avoid any issues in the future.

Another option is to prepay your expenses. For example, you can pay your rent, insurance or interest
in advance to claim deductions this year. This would be extremely helpful if there were a higher tax
rate than in the current year.

One more option is to write off any bad debt before June 30. Then, you can claim a deduction before
June 30. But make sure you have accurate documents to prove these are bad debts.

4. Compliance and Reporting

Payroll reporting is also a critical part of tax planning for IT companies. So keep your payroll reporting
up to date and complain about STP requirements. Also, make sure you are doing year-end
reconciliations. Such regular reconciliations can help maintain accurate employee records and
superannuation contributions. Remember, you have to stay compliant with Division 7A if your IT firm
has shareholder loans. Make minimum repayments so you can avoid deemed dividends and the
relevant tax liabilities.

5. Tactical Tax Planning

Employee bonuses and benefits give you double benefits. They help keep your employees happy and
help slash down your tax liabilities. So make sure you commit to communicating these bonuses
before June 30. Only then can you claim this particular deduction. Similarly, make sure all the
employee benefits are accounted for and compliant with fringe benefits tax (FBT) requirements.

If your IT company is running as a trust, you can determine the income distribution before June 30.
Make sure you do proper tax documentation to avoid any tax-related problems.

Negative Gearing is one more way that IT companies can manage their taxes. If you are investing in
any property or other asset class, you can offset income with negative Gearing. Talk to experts at
Nanak Accountants to learn more about negative gearing and how it can help your IT firm.

6. Personal Service Income and Test

IT companies have to stay cautious about Personal Services Income (PSI) rules. This rule can impact
your tax obligations. If your IT company is registered as a Personal Services Entity, then it might
impact your taxation. PSI is the income that you earn from your personal skills or efforts as an
individual. In the IT industry, this often applies to freelancers, consultants, and contractors. It’s very
important to determine whether your income is classified as PSI. For this, you have to pass the ATO’s
tests. To determine if your income is PSI, you must pass the following tests set by the ATO:

Results Test:

• You must be paid to produce a specific result.
• You are required to provide the necessary tools and equipment to complete the work.
• You are liable for rectifying any defects in the work.

80% Rule:

• If 80% or more of your income comes from one client, you cannot self-assess and must use the remaining tests or obtain a determination from the ATO.

Unrelated Clients Test:

• You must have two or more clients that are not related to each other.
• Your income must be generated by making offers to the public, such as advertising your services.

Employment Test:

• You engage others to perform the work that generates the income
• Alternatively, you have apprentices employed for at least half the income year.

Business Premises Test:

• You must maintain and use separate business premises.
• The premises must be physically separate from your home and from your client’s premises.

PSI classification affects your deductions significantly. It also limits your claims for home expenses
and payments to associates. For precise guidance and compliance, consult tax planning experts like
Nanak Accountants.

Talk to Professionals

Tax planning for IT companies is a complex task. We hope this guide can help you out with your tax
planning. But we strongly recommend you consult with a professional for better guidance. And there
is a reason for that. Tax laws keep on changing regularly. So why risk the wrath of ATO by making a
wrong claim or taking a non-eligible deduction? At Nanak Accountants & Associates, we have multiple IT
companies as our regular clients. We help them optimise their taxes and make sure they stay
compliant with necessary regulations. Talk to our experts and get the most accurate advice for IT
company tax planning.

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