Tax planning plays a vital role in managing finances for individuals, businesses, and organisations by creating a strategic framework to reduce tax liability while optimising savings and profits. In the world of manufacturing, where progress and growth are essential, it is crucial to establish financial stability in the present to pave the way for a successful future.

As we are currently living in the era of Industry 4.0, it’s crucial for manufacturing businesses to stay competitive by investing in innovation and staff capabilities. One way to increase funds for this is by maximising your after-tax profits and cash flow. 

By incentivising businesses that engage in research and development (R&D) activities and offering grants to manufacturers who invest in innovation, the Australian Government is actively pushing for the growth of domestic manufacturing capabilities.

Top six tax strategies for manufacturing businesses:

Strategy one – Claim deductions for capital expenditures

Manufacturers often need to invest in equipment, machinery, and other assets, especially to increase efficiency and stay competitive in the climate of Industry 4.0. Depending on the applicable legislation, these expenditures can be instantly written off or claimed as deductions over several years, which can reduce your business’s taxable income.

Businesses with a turnover under $5 billion can claim an immediate deduction on any assets, such as machinery and equipment, installed or ready for use by 30 June 2023. But from 1 July 2023, those assets will need to be deducted over their effective life (which for machinery could be decades). 

Strategy two – Take advantage of research and development (R&D) tax incentives and other grants

The Australian Government offers generous tax incentives for businesses that engage in R&D activities. Manufacturers that invest in developing new products or improving existing ones may be eligible for these incentives. It’s also crucial to be aware of the current grants available for manufacturing businesses as part of the Government’s initiatives to push domestic manufacturing capabilities. 

Strategy three – Structuring business operations for tax efficiency

Consider the most tax-efficient way to structure your business operations to ensure the maximum amount of profits after tax, including how profits are distributed, which entities own assets, and which entities are responsible for liabilities. If you’re considering restructuring, the small business restructure rollover is great news for small business owners.

Strategy four – Maximising deductions for employee expenses

Manufacturing businesses often employ staff who require special training or who work in hazardous environments. Businesses can claim deductions for these expenses, including training costs, protective clothing, and safety equipment. These expenses can ensure a safer environment for employees, reduced injuries and accidents and as a result, fewer Workcover claims.

Strategy five – Keeping up-to-date with changing tax laws

Tax laws in Australia are constantly changing, and manufacturing businesses need to keep up with them to ensure they’re taking advantage of all available tax benefits and incentives, and not falling foul of the ATO’s rules.

Strategy six – Take advantage of small business tax concessions

Small manufacturing businesses can take advantage of various tax concessions, such as simplified depreciation rules and the ability to immediately write off assets that cost less than a certain amount.

Another important point: 2023 is the last year in which eligible companies can carry back their losses to earlier years of income, thus generating a cash refund. After this date, losses will need to be carried forward.

Bottom line

By implementing these tax planning strategies, manufacturing businesses in Australia can optimise tax efficiency, reduce tax liabilities, and improve cash flow. If any of these strategies don’t make sense, or you’d like help to implement them for your business, get in touch with a manufacturing business consultant as it’s important to seek professional tax advice to ensure compliance with all tax laws and regulations.

Dianne Pham is senior accountant at BlueRock.