The best ways to reinvest your tax refund this EOFY
As we race towards June 30, all thoughts start turning to tax refunds and deductions.
As we race towards June 30, all thoughts start turning to tax refunds and deductions. Xero’s tax time research found that across all age groups, 71% of businesses are expecting either a tax refund or tax bill this year, with 45% specifically expecting a refund. If you’re in the category eagerly expecting a refund, it pays to have a plan for it.
“If you are a company or a trust, make sure that you are reaching out to your accountant,” says Sarah Lawrance, Xero Partner Advisory Council member and founder of accounting service Hot Toast. “More often than not they have great insights and getting ahead of that conversation means that you can plan out to June 30 and beyond.”
Lawrance suggests really understanding your business’s immediate and long-term needs, and reinvesting a tax refund to suit these. “Try to go back to basics and ask, why am I doing what I’m doing? Have I got a strategic plan around that, and how can I make sure the spending is aligned with that?”
For those expecting a refund, Lawrance has some suggestions for how to invest it back into your business.
Bonuses and salary increases
Plenty has been said about talent shortages and issues affecting employee retention and recruitment, and Xero’s research shows only 10% of businesses are planning to invest their tax refund into these areas. It requires some forward planning, but Lawrance has found business success by investing in staff salary increases and regular bonuses to boost retention and employee satisfaction.
“We have quarterly OKRs (objectives and key results) and bonus amounts and certain salary increases baked into the year,” says Lawrance. “That’s intentional because people want to know where they’re going and want transparency over ‘am I growing as a person in myself and for the business? And am I going to be rewarded for that as well?’”
It’s important to note that these sorts of investments shouldn’t be made on a whim when that refund comes in. “The key is always to make sure it comes back to the planning stage,” Lawrance says. “When you’re doing the forecasting, then at that time you’re mapping out people’s KPIs and their OKRs. And they shouldn’t just be financial, it needs to be really well rounded.”
Upgrade technology
With Xero’s research finding that 29% of businesses plan on investing in technology, upgrading can be a great way to ensure that a tax windfall gives employees a reason to stay or join. Lawrance recommends that, if you haven’t already, it’s time to look at new communications software. “Nothing’s better than communication with your staff and being able to give staff really clear objectives around what our expectation is for them, what our expectation is for the business and bringing them along on the journey,” says Lawrance.
Hot Toast has found success with video messaging technology like Loom, but it’s worth considering any tech that can facilitate modern employee expectations.
“Because we’re a distributed team and everyone’s around Australia, everything’s on Loom,” Lawrance says. “We’ve invested in that technology and that works for us. Now is a good time to look at that and what gets you the best ROI.”
Consult with the team first, and then make a plan to reinvest in them with tech that makes their working lives easier. “Our choice is based on knowing we were going to be 100% cloud and distributed, we knew we wanted to give people that balance in life – how do we make sure that the technology supports that?”
Be conservative
While it’s easy to see a lump sum tax refund and want to change your business, Lawrance suggests proceeding with caution and keeping some of that cash aside. “This year I’m taking a more conservative approach with my clients,” Lawrance says. “Part of that at the moment, with quite an uncertain environment and economy, is also about reserves. More so than ever, it’s worth being really quite conscious about your cash position, your cash reserves and making sure you’ve got a buffer in there moving forward into next financial year.”
Being conservative can also apply to the pressure to spend on last-minute business items as June 30 approaches, as 55% of strategic business leaders (SBLs) are planning to do. . Though there are definite incentives to spend for tax deductions, Lawrance says businesses need to be smart about that choice.
“If you need it, yes, but do not go and use it if you don’t have it,” Lawrance says. “If it’s in line with your strategy, bring it forward if you’ve got the reserves there. Otherwise, don’t just spend it to spend it.”
Need help tidying up the books and wrapping up accounts this end of financial year? Check out Xero’s EOFY resource hub.
