Navigating Tax Minimisation in Australia: A Guide for High-Income Business Owners


Navigating the complex landscape of Australia’s taxation system requires a keen understanding of various taxes such as income tax, company tax, capital gains tax (CGT), and goods and services tax (GST). As registered tax agents and chartered accountants specialising in advising high-income, high net wealth business owners predominantly in the health and professional services industries, understanding how to save tax in Australia is paramount. Implementing effective tax planning, tax compliance, and strategies to reduce taxable income can significantly impact your financial health.

In this guide, we’ll explore actionable ways to reduce tax and save tax in Australia, including choosing the right business structure, maximising deductions and allowances, and the role of professional tax planning services. By adopting tax-saving strategies and understanding how to minimise tax in Australia, you can ensure compliance while optimising your financial outcomes. Whether you’re looking to understand how to reduce your taxable income or seeking ways to reduce taxable income, this guide aims to provide valuable insights into tax minimisation for high-income earners in Australia.

Understanding Tax Minimisation

Understanding tax minimisation involves leveraging legal strategies to reduce your tax liability. Here are some effective methods:

  1. Maximise Allowable Deductions:
    • Voluntary superannuation contributions and income protection insurance can significantly lower your taxable income.
    • Investing in assets that depreciate over time allows for deductions that reduce taxable income, especially for properties generating income.
  2. Strategic Asset Management:
    • Consider the timing of asset sales to reduce capital gains tax (CGT) liability and buying assets in a partner’s name if they are in a lower tax bracket.
    • Setting up a discretionary trust allows for the distribution of business or investment income to lower-tax-rate beneficiaries.
  3. Tax Planning and Offsets:
    • Engage in tax planning before the financial year ends to forecast and adjust your tax position.
    • Utilise tax offsets like the Low Income Tax Offset or Spouse Superannuation Contribution Offset to further reduce your tax bill.

By implementing these strategies, you can navigate tax minimisation effectively, ensuring compliance while optimising financial outcomes.

Choosing the Right Business Structure

Choosing the right business structure is a pivotal decision that can significantly influence your tax liabilities and overall financial health. Here’s a breakdown of the various structures and their tax implications:

  • Sole Trader: As the simplest form of business structure, sole traders pay taxes on business income at their individual marginal tax rate, which can be as high as 45% plus the Medicare levy for top earners.
  • Partnership: In a partnership, each partner pays tax on their share of the profits, calculated based on their individual tax rates. This structure allows for the sharing of income and expenses but does not pay taxes as a separate entity.
  • Company: Companies are taxed at a flat rate of 30%, or 25% for base rate entities (most small businesses who are not earning significant rent, dividends or interest). This structure offers benefits like asset protection and the potential for tax planning through dividend distribution but lacks a tax-free threshold, meaning all income is taxable.
  • Trust: Trusts provide flexibility in distributing income among beneficiaries, potentially lowering the overall tax liability by allocating income to those in lower tax brackets. Trusts themselves do not generally pay taxes; instead, beneficiaries declare their share of trust income on their individual tax returns.

    Each structure has its unique advantages and challenges. It’s crucial to consider your business’s specific needs and long-term goals when deciding on the most appropriate structure for tax minimisation and compliance.

Maximising Deductions and Allowances

Maximising deductions and allowances is essential for high-income business owners in Australia to effectively reduce their taxable income. Here are some strategies to consider:

  • Home and Office Expenses: You’re entitled to claim a portion of expenses if you work from home and meet criteria set by the Australian Taxation Office (ATO). This includes costs related to heating, cooling, lighting, and the depreciation of office furniture and equipment. Remember, keeping accurate records is crucial and rules in this area have recently changed.
  • Educational Investments for Career Advancement: Expenses incurred for education that is directly related to enhancing skills in your current employment could be deductible. This includes course fees and related costs, provided the education is likely to lead to an increase in your income from your current employment.
  • Strategic Deductions for Work-Related Expenses: Certain expenses incurred in the course of earning your income are deductible. This can encompass transportation costs between worksites, travel, meals and accommodation while staying away overnight for work, and tools or equipment needed for work. Ensure you have proof of purchase for all claims and in some cases a travel diary or logbook.

    By leveraging these deductions and allowances, you can significantly reduce your taxable income, ensuring you’re not paying more tax than necessary. Always consult with a tax professional to ensure compliance and to identify all possible deductions relevant to your situation.

Investment Strategies for Tax Minimisation

Investing strategically is essential for minimising tax liabilities, especially for high-income business owners in Australia. Here are some effective investment strategies:

  • Capital Gains Tax (CGT) Management:
    • Hold investments for over 12 months to benefit from the CGT discount, which taxes only half of your capital gain.
    • Utilise capital losses to offset capital gains in the current year or carry them forward to reduce future capital gains.
  • Investment Types:
    • Positive Gearing: Generate income that exceeds the investment cost, contributing to your cash flow.
    • Negative Gearing: Deduct investment losses from your taxable income, effectively reducing your tax bill.
    • Superannuation: Take advantage of the lower tax rates on contributions and earnings in your superannuation fund (generally 15%).
    • Insurance Bonds: Invest for a 10-year period to enjoy tax benefits, with earnings taxed at a corporate rate and not included in personal income.
    • Australian Shares: Use franking credits from Australian companies to lower the tax on dividends or receive a tax refund.
  • Strategic Actions:
    • Superannuation Planning: Maximise contributions to enjoy lower tax rates and deductions.
    • Asset Timing and Allocation: Time the sale of assets and consider asset allocation in lower tax rate names to reduce CGT liability.
    • Salary Packaging: Divert part of your salary into a super fund or other deductible expenses to increase take-home pay.

Implementing these straetgies can significanlty reduce your tax liabilities, allowing you to retain more of your hard-earned income while staying compliant with tax laws.

The Role of Professional Tax Planning Services

Professional tax planning services offer a comprehensive approach to managing your tax liabilities, ensuring you’re taking advantage of all available opportunities to minimise taxes and enhance cash flow. Here’s how they can assist:

  • Structuring and Entity Selection: Tailoring business structures to your unique situation to optimise tax outcomes, considering the reduced company tax rate for base rate entities to 25% for the 2021/22 income years and beyond.
  • Deduction Optimisation and Capital Gains Tax Planning: Advising on maximising allowable deductions and strategic timing of asset sales to minimise CGT. Our experience with the small business capital gains tax concessions means we help many clients achieve the sale of their business tax free.
  • Superannuation Planning and Tax Incentives: Utilising the superannuation system for tax-effective retirement planning and navigating tax incentives, such as the small business income tax offset of up to $1,000 for individuals with a turnover of less than $5 million.

    Professional services go beyond mere compliance, focusing on strategic tax planning to reduce taxable income, provide flexibility in tax payments, and ensure you’re claiming all applicable tax credits. By leveraging their expertise, you can avoid common pitfalls and ensure your tax strategy is both compliant and optimised for your financial goals.

Throughout this guide, we’ve navigated the intricate pathways of Australia’s taxation system, aiming to arm high-income business owners with the knowledge needed to optimise their financial health through tax minimisation. By evaluating different business structures, maximising deductions, investing strategically, and considering the importance of professional tax planning, we’ve highlighted actionable methods to not only ensure compliance but to significantly enhance financial outcomes. Remember, choosing the right approach for your business and personal financial situation is crucial, involving a deep understanding of the implications each strategy holds for your unique circumstances.

As we reflect on these strategies and the importance of meticulous planning, the role of professional tax planning services cannot be overstated. Leveraging such expertise ensures that all avenues for tax minimisation are explored, compliance is maintained, and financial health is optimised. To further navigate these options and tailor a plan that aligns with your specific financial goals, consider engaging professional advice to guide you through this complex landscape. For high-income, high-net-worth business owners, especially within the health and professional services industries, this personalised advice can be the key to unlocking significant financial benefits. Don’t hesitate to book a tax planning service with us that can help you navigate these opportunities with precision and strategic foresight, ensuring your financial plans are both robust and compliant.

myGovID – what is it, and do you need one?

What is myGovID?

myGovID will be the new entry way to identify yourself to log in to Australian government services for tax, business, immigration and social security. Accessing government websites can be a hassle – with this new app called myGovID, you no longer have to worry about remembering logins or passcodes. myGovID is like having a digital identity to yourself. The app enables users to access multiple Australian Government services by creating a single login or sign-in for those services.

Benefits of having a myGovID app

  • Quick sign-in to your tax, business, or immigration services.
  • You can access your government service records securely.
  • Access to all tax alerts relevant to you through the myGovID app.
  • Make tax payments securely through your myGovID app.
  • Your tax history is available to view anywhere, anytime.
  • Easy & secure access to online government services.
  • Having a 100-point ID check on your smart device.

What’s the difference between myGovID & myGov?

In one location, with a single login and password, myGov is the entry point to a slew of online government services for individuals not businesses, including Medicare, myTax, and Centrelink.

On the other hand, myGovID is like having a distinct digital identity for yourself, allowing you to access government services online by setting up one digital persona that may be used with various services without visiting a shopfront. This lets you complete everything online without a phone call to the tax office.

Do I need a myGovID app?

Yes, most clients will need a myGovID. Anyone running a business or holding a directorship of a company will need one, as will individuals who want access to online government websites.

There’s no need to memorize usernames, passwords or have various tax accounts because the myGovID app can access them for you. It’s a fast and easy way to do tax from any smart device, and if you’re not sure how it works, we are always here to help.

How to set it up?

You will need a smart phone or tablet to set up a myGovID. The setup process is simple, and you can be myGovID-ready in less than five minutes. Here’s how:

  • Go to the google play store or the App store
  • Search ‘mygovid’
  • Just download the app, click on ‘Create an account,’ enter your personal details (use a personal email address, not one belonging to your employer, school or university)
  • Verify your identity
  • You are all set! Now you’re ready to use your myGovID app to access your tax, business, and immigration services.

There are three identity strengths in the myGovID app. Basic, Standard & Strong.

  • Basic identity strength – Enter your personal details
  • Standard identity strength – Verify your identity documents (e.g., Medicare, Australian driver’s license, Passport)
  • Strong identity strength – Verify your face to be checked against your government records

It is recommended that you use the highest identity strength as it provides a higher level of trust.

You can check further details on the official website – https://www.mygovid.gov.au/.

The Bottom Line

We recommend all clients create a myGovID as soon as possible, as most of you will be forced into it in the coming months. If you are having any difficulty in setting up your myGovID app, just give us a call. We are always happy to lend our support!

 

6 business resolutions your medical practice can’t afford to ignore

 

Do you ever feel a bit lost as to how you should be improving the business of your medical practice? While patient care may be your forte, do the staff demands, administration, risk management and financial matters seem to get in the way of what you set out to do?

If so, you’re not alone.

Your primary degree is in medicine or health care not business, and many of the business lessons you’ve learned along the way will have come from family, friends, and experience rather than formal education. It is tempting to work on the things that come most naturally, the things we have most confidence in, rather than the things that we have less exposure to or are less skilled at. Perhaps you get stuck moving transforming an idea into actions and outcomes. Or maybe you get stuck knowing which idea to implement first?

It’s possible to improve your confidence and financial position by making solid improvements to your business this year, and we can show you how. Implementing just one of our six new years resolutions for your medical practice will improve your bottom line, streamline your administration, and for some recommendations, improve employee morale.

 

  1. Automate one aspect of your medical practice

When you think about your practice, there is likely to be at least one system, procedure or workflow that could be automated or improved.

If your patients still ring you during office hours to book in, investigate online booking systems such as health engine, appointuit or cliniko.

If you collect patient fees and distribute them to doctors or dentists at the end of the month, consider implementing Surgical Partners to automate the calculation of doctor service fees. Trust us, your practice manager will love you for this one.

You may also like to introduce an automated reminder system for patient appointments to improve attendance rates and increase daily billings.

 

  1. Improve one employee process

Nothing frustrates employees or business owners more than clunky or non-existent HR systems. There is always something that can be streamlined or improved – and if you are not sure what, your employees are sure to have ideas if you are brave enough to ask the question.

Some apps we are loving for employee process improvement include:

  • Enable HR or Employment Hero for employee contracts, policies and work health & safety compliance
  • Tsheets for recording employee rostering, attendance and timesheets

 

  1. Reduce one risk

As many risks cannot be totally eliminated, risk management incorporates risk reduction and risk sharing (insurance).

Allow yourself five minutes to think of the biggest issue keeping you up at night – the one you worry about most. Then work out what the risk (or fear) actually is – is it litigation, is it conflict, is it cyber crime?

For the risk identified, determine procedures and processes that can reduce this risk. For example, improving employee processes as outlined in item 2 may reduce the likelihood of serious conflict or litigation and give you confidence that you are making steps towards this risk being less of a concern for your business in the future. You may also like to consider whether the risk can be insured so that you are financially protected if the risk ever becomes reality.

Many practices are under insured for cyber insurance, and directors and managers insurance. Booking a meeting with your insurance broker to discuss whether these insurances are relevant to your business is a positive step forward in your risk management plan.

 

  1. Set a budget

Most practice owners don’t know where to start when developing a budget for their medical practice. Profit doesn’t happen by accident, but losses certainly can. A Squared Advisers are experts at helping medical and allied health practices ensure their operating model is profitable, and reduce the uncertainty of feeling like you’re ‘flying blind’. If you’d like to improve your practice bottom line in 2018, book an appointment with us now to get this one ticked off the to do list. We promise it will be easier than you think.

 

  1. Improve one patient experience

A patient’s experience of your practice will directly influence whether that patient raves about you positively or rants about you negatively. Visiting a doctor or dentist can be exceptionally stressful for patients, so any experience you can make easier will stick in the memory of that customer and help win you a customer for life.

Some patient experiences you may wish to improve include:

  • Online booking systems – if you only accept bookings over the phone during office hours you are losing patients to nearby businesses who allow bookings online 24/7.
  • Patient follow ups – if you are a dentist and you haven’t seen a customer for 6 months you may like to automate a reminder program for this customer. A gentle reminder with an easy way to return can make the difference between getting that appointment and missing out altogether. Similarly GP practices who haven’t seen a patient for 12 months may like to send a reminder about men’s health or women’s health check up services to assist busy patients in remaining on top of their healthcare.
  • Patient appointment reminders – minimise the no-shows by reminding clients of their appointment the day before and day of their scheduled booking.

 

  1. Improve one business reporting system

 Your first reaction may be that you don’t have a business reporting system.

We are sure you do, in fact you likely have many. But you probably haven’t looked at them in a while so let’s consider what information you do have readily available.

Your accounting system

Hopefully you’re on our favourite cloud accounting program xero, and so you can see your business profit, loss and asset position in real time, at a glance. If you’re not yet online this is a really easy way we can help you improve your business reporting.

Your patient management system

This is one of the richest sources of information for your business. It is likely to contain the following:

  • Number of new patients per month
  • Average revenue per patient per month
  • Number of patients not seen for 6 months
  • Percentage of privately insured/DVA/Medicare patients per month
  • You may even be able to see the concentration of your patients by postcode.

These metrics are useful because they allow you to see trends, and to analyse marketing and business decisions in light of information you have about your practice. For example, if 50% of your new patients are coming from one particular postcode it would make sense to ensure your advertising and marketing efforts are targeted to this postcode, particularly if it is more than a few kilometres from your practice. It is also important to keep an eye on the number of new patients per month to ensure this is not steadily declining. A steady increase in new patients may also provide forward indicators for you as a business person that it may be time to increase your practitioner staff levels.

If you are kicking goals with the above systems – and by that we mean that the information is complete, accurate and key performance indicators are regularly monitored, then consider what new business reporting or metrics you can bring into your practice in 2018 – perhaps consolidating your marketing and customer acquisition reporting may be of benefit.

If you are feeling a little uncertain as to how well you’re reporting your financial and patient metrics, or which ones to monitor then reach out to your accountant for some help.

Remember – improvement in even just one area will make a difference to your business. It is far better to implement one new improvement well than start on three and not finish any of them. Also remember that you don’t need to do this alone. Practice managers, administration staff and A Squared Advisers are here to help you .

 

What first step are you going to take today to improve your practice for 2018? If you need assistance getting started, please don’t hesitate to contact us.

Tax tips for your Medical Practice this Christmas

 

The silly season is here – celebrations, awards nights, end of year presentations, school holidays, and of course the end of year Christmas party. We are commonly asked what your business can pay for staff and suppliers at Christmas, so here’s our handy guide, including a few tips to ensure you get the best outcome possible.

Christmas parties

Unfortunately, the fact that you plan to have fun at your Christmas party doesn’t bode well for your tax (we highly recommend having fun anyway). Christmas parties are considered entertainment, which brings the into the Fringe Benefits Tax (FBT) provisions. If the cost of the Christmas party is less than $300 per employee, the party is not deductible to your business but is not subject to FBT. If the cost per head is more than $300 per employee the party will become subject to FBT (at a cost of almost the same amount as the party itself). The cost of the FBT and party would then be deductible to your business. Generally, for tax purposes, you will be better off keeping to the $300 per person limit.

 

There is one exception, which allows you to have a tax-deductible Christmas party exempt from FBT – parties provided only to current employees, held on the business premises on a work day are both exempt from FBT and tax deductible. The more creative among you may be able to create a fun party at work on a work day, and the Tax Office will reward you for your efforts.

 Christmas gifts

Christmas gifts given to employees which are non-entertainment gifts, such as Christmas hampers, wine, gift vouchers or other physical gifts, are generally deductible. Provided the cost of the gift is less than $300 per employee, the gift will be considered a minor benefit and will not be subject to FBT. That’s about as good as it gets– no FBT and a tax deduction. However, you must stick to the $300/person limit. More extravagant gifts will not qualify for the minor benefit exemption and will attract FBT – at which time you would generally have been better paying a wage bonus to your staff. If you think this might be you, please check in with your A Squared Advisers accountant.

Christmas gifts which are considered entertainment, such as movie tickets, tickets to sporting events or holiday accommodation are not subject to FBT if less than $300 but not tax deductible. If more than $300 they are subject to FBT.

Therefore, gifts which are property (wine, gift vouchers, hampers etc) receive a more favourable tax treatment than gifts which are entertainment (tickets to events or holidays).

Gifts for suppliers and customers

Christmas gifts for suppliers and customers are deductible provided you can show they relate to your income earning activities, and the gift is not considered entertainment. Entertainment would be tickets to shows/movies/sporting events etc which are specifically not tax deductible.

Parties for suppliers and customers

Provided your suppliers and or customers are not former (or future) employees, benefits provided to them are exempt from Fringe Benefits Tax as FBT only deals with payments to employees and their associates. However, parties specifically fall into the tax category of entertainment which makes them not tax deductible.

Medical & allied health service entities

Many medical service entities will have a Christmas party that combines professionals with administration & nursing staff. The professional team will generally not be employees, rather customers. In this case is important to keep records of who attended so that the tax treatment can be appropriately determined.

We hope you’ve had a rewarding and fulfilling year in 2017 and can take some time out to celebrate your business achievements with your team. If you have specific questions about your Christmas parties for your medical or dental practice we are only ever a phone call or email away, and always here to help.

 

Disclaimer – this is general advice only which has been written for small businesses who do not hold a fringe benefits tax exempt entity status. Advice specific to your circumstances can be obtained by contacting A Squared Advisers.

Continual Improvement – Sharing our Documents via Box.com

Improving transmission of electronic documents

We are seeing a significant number of documents being emailed to/from our office. As part of our continuous improvement processes, we are implementing a new system for sending out electronic correspondence for most clients.

We currently use box.com to store our clients documents, as a world leader in document security and sharing. Box has a facility for us to be able to share documents with you rather than emailing documents as email attachments. We like this system because it means the documents aren’t sitting in inboxes/outboxes (which could be a security risk if email was hacked) and it allows you to be able to easily access the documents in your document portal at any time by logging in to box.

Getting started with box.com

To get started, you will receive an invitation to collaborate with us via box.com. When you receive the email invitation you will be prompted to enter an account name (your name) and password. We will never know your password, it is managed directly between you & box.

You will be invited to folders for your entities which will all be called

A Squared Advisers Documents for <Entity Name 1>

A Squared Advisers Documents for <Entity Name 2>

Turning on Notifications

It is important that you update your account settings in box.com to turn on notifications so that you are alerted when we send you a document.

Please follow the instructions here to turn on notifications.

https://community.box.com/t5/Account-Information/Email-Notification-Settings/ta-p/35

How do I access my documents

You can access box at any time by going to https://asquaredadvisers.box.com and logging in (or just box.com if you forget!).

When we email your BAS etc out to you, we will send you a link to the document which you can click on and log in to box to view. You can download for your records then if you want to.

Some FAQ’s are below:

Q: What is my ‘account name’ when signing up to box.com

This should be your personal name.

Q: What about docusign?

We will continue to use docusign as our signing mechanism for electronic documents.

Box.com is the mechanism for storing these documents and allowing you to access them in the future. All our correspondence will move to this method, so our cover letters will be in box.com but do not go to docusign.

Q: Can I still get a paper copy printed?

Yes, absolutely. If you are invited to a shared box account with us and wish to receive paper copies instead please email or call our office to let us know.

Q: Will box.com cost me anything?

You do not need to pay anything for the box.com access.

 As always, if we can help, please don’t hesitate to email or phone our office.