How To Turn Business Losses Into Cash Flow

When the typical new business operator starts aexempt from this. The total revenue or income is
business, they concentrate on making the businessusually low. It is often below the thresholds where the
succeed. That is necessary but not the only thing thatbusiness has to register for GST or VAT, so that the
a business operator should concentrate on. A businessbusiness owner may be tempted to not register for
depends on cash flow to exist and grow, so businessGST or VAT, thereby saving on administration (in filing
operators would do their business a good turn bythe returns) or accounting costs.If the business owner
looking at sources of cash flow provided by thecontacts their local taxation authority, they will be
Government.We are talking about the taxationcorrectly advised of the income thresholds for
authorities such as Inland Revenue Department in Newregistration and the decision will be left to them to
Zealand (IRD), the Australian Taxation Office inmake. It would not be appropriate for a taxation officer
Australia (ATO) and Inland Revenue in the Unitedto advise the business owner on how to manage their
Kingdom and the Inland Revenue Service in the USAtaxation affairs, and there is a case of the Privy
(IRS). All of these taxation administrations, along withCouncil (UK) that confirms the Inland Revenue cannot
those in Canada and South Africa for example, havetell a business owner how to run their business. It is
both income tax and goods and services tax (GST) orcertainly not obligatory on the taxation authority to
value added tax (VAT) that present opportunities foradvise a business owner on a course of action that
refunds when a business' expenses exceed itswould contravene their charter of "protecting the
income in the early stages of its life.Initially, the start-uprevenue" of the State.This is why a business owner
capital may come from savings, family and friends andshould seek the advice of a suitably qualified
salaried employment. The last source of finance -accountant who is experienced in taxation and
salaried income - means that the business operator stillbusiness advice. A proactive accountant is more likely
works full-time for a salary and part-time on theirto provide this advice than a compliance accountant.
business. This presents particular opportunities toThe compliance accountant's role is more likely to
receive extra cash flow to fund the growth of theinvolve complying with tax laws, rather than optimising
business - from value-added taxes and income taxtax situations. The compliance accountant's mind is so
refunds.It should be noted that even where theattuned to complying with tax laws that they often do
business owner does not have other salaried (taxnot see the opportunities for optimising a client's tax
paid) income, they might have a husband or wife whoposition.Once the business owner has been convinced
does have salaried income. If they become a partnerthat it is in their interests to register for GST or VAT,
in a partnership conducting the business, or athe next question is for what filing period to opt? The
shareholder in a Loss Attributing Qualifying Companymore regular a filing period, the sooner the GST or
(LAQC) in New Zealand only, then they can share inVAT refunds will improve the business cash flow. So
the business losses and receive income tax refunds.Inthey may decide to opt for monthly or two-monthly
Australia, there was an ATO income tax ruling (ITGST or VAT returns. There will be an administration or
2218) that allowed a partner to receive a salary - asaccounting cost that needs to be weighed against the
long as the partnership agreement recorded it in writingbenefit of a quicker cash flow.The income tax refund
- and this presented an opportunity to maximize theis an annual event that cannot be changed, except for
loss for one partner (the salaried partner), therebywhere the business owner is leaving the country
maximizing the income tax refund. That income taxbefore the end of the tax year and applies to have a
ruling was withdrawn on 22nd May 2002. Australia hastax return processed sooner. There will be extra
no LAQC equivalent entity. However, there is nothingforms to complete and information to provide, and it
preventing a partnership agreement specifying ausually means that the business is closing down. Even
partnership split other than 50/50, so that one partnerthat income tax return should be lodged as early as
can receive more of the loss than the other. It wouldpossible after the tax year ends, rather than being left
be prudent for the partnership agreement to recordto be filed with other taxpaying business owners, so
the reasons for the ratio used.So, how does it work?the income tax refund is received soon rather than
Most businesses start off making losses, and smalllater.
businesses and home-based businesses are not