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.

5 pros and cons of having a family trust

grandparents with babies

This information is accurate as of 17 April 2019 and is subject to change. This is general information only for educational purposes and no one should rely on this advice alone.

Want to feel more confident about the protection of your assets?

You might want to consider starting a discretionary trust.

A discretionary trust (often colloquially called a family trust) is normally set up for the protection of a family’s assets, although some families create a trust to effectively manage their income and hold their investments.

When a trust is created, assets are placed in the care of a third party, referred to as a trustee, who manages the trust on behalf of the family’s beneficiaries. This removes the burden of individual ownership. Often, the trustee is a company controlled by individuals in the family group.

Most trust deeds have an appointor – the person who can appoint or replace the trustee. This person (or persons) play a powerful role in the safeguarding of the trust as they can replace the trustee if the trustee is not fulfilling their role.

The trustee is responsible for managing and investing the assets for the benefit of the beneficiaries; distributing the income of the trust each year; and when the trust comes to an end, distributing the capital of the trust.

There are various pros and cons to setting up a discretionary trust. In this article, we share three pros and two cons to opening a trust, plus provide some advice about starting a trust with your family.

Read on.

A few technical notes before we begin… 

  • While a trust might be called a “family trust”, a trust is only a “family trust” for taxation purposes and only if a valid family trust election has been made.
  • Family trust elections are particularly relevant where a trust makes a loss or distributes franked dividends/distributions.
  • A detailed analysis of family trust elections is outside the scope of this article.
  • This article is valid as of 17th April 2019 and is subject to change.

Pro #1: Asset protection in the event of divorce or bankruptcy 

Normally, when a person experiences divorce or bankruptcy, their assets are put at risk of loss. Assets can be seized by Order of the Court or, alternatively, by the enforcement of a Court Judgement.

A family trust can help to protect assets like money, businesses and investments among other things. A fully discretionary trust (i.e. no default beneficiaries) can stop beneficiaries and creditors barging in to split the assets in the event of divorce or bankruptcy.

In a fully discretionary trust, the trustee decides who has access to the assets and can split the trust accordingly. It is worth noting that the Family Law Courts of Australia will consider any assets owned by discretionary trusts to which a spouse is a beneficiary as a form of financial resource and can factor this into their judgements regarding the split of assets.

In the case of bankruptcy, trusts may offer some protection provided the bankrupt person is not the appointor or trustee and provided the bankrupt person has not transferred wealth to the trust with the intention to defeat creditors.

Pro #2: Reduced tax when purchasing investments 

A family trust can be used to purchase investments – and there are legitimate tax benefits for doing so.

If a trust acquires investments such as shares in listed companies or units in trusts, the income on those investments is paid to the trust who then decides who to distribute this income to in any particular year.

If the investment is held in the trust for more than twelve months, the gain on the investment is currently eligible for a 50% capital gains tax discount upon sale, provided the capital gain is distributed to an individual beneficiary.

One of the most influential reasons to open a family trust for investment ownership is protection from creditors. When investments are included in a discretionary trust, the investment technically belongs to the trust rather than the beneficiaries – so if anyone in the family goes bankrupt, creditors can’t seize the investments.

Whilst land/property/buildings can be acquired in a discretionary trust in NSW land tax will apply to all of the land value. Individuals have a threshold of land ownership which is exempt and this does not apply to discretionary trusts. Therefore personalised advice should be sought prior to planning to acquire property in a trust.

Pro #3: Perfect for retirement planning and complementing superannuation 

The aim of most working Australians is to have a comfortable retirement. Naturally, you want to enjoy the autumn years of your life! Most Australian workers build their retirement funds through superannuation – and a discretionary trust is often a perfect way to supplement these earnings.

Unlike superannuation funds, trusts have no contribution limits, no restrictions on where you can invest (unless specified by the trust deed) and no borrowing limits. You can give and take from a trust as needed, so you have increased financial flexibility throughout life.

A trust can also be useful for passing on your wealth after death. As a trust is not owned by an individual, the trust and trust assets cannot be willed by that individual therefore keeping the assets out of the estate. Control of the trustee may be able to be passed down by dealing with the ownership of the trustee company, or nominating a subsequent appointor for the trust.

This enables you to nominate who you want to manage the trust after your death and allows assets to continue in their existing structure without stamp duty and income tax complications.

Con #1: Trust losses cannot be distributed

One of the major inconveniences of a trust is how capital or revenue losses are handled. Losses cannot be distributed among beneficiaries – instead, the loss is trapped inside the trust and has to be funded with after-tax income.

For example, imagine a couple purchases an investment property and is receiving rent from tenants. However, after some time, they find out the rent being paid isn’t enough to cover interest and other costs related to the house, so the loss gets trapped inside the trust.

In order to ensure the trust has sufficient cash flow to pay expenses the family members benefiting from the trust may need to loan money to the trust.

In order to carry forward the loss and offset it against future income, the trust may need to make a family trust election to pass the loss tests which can limit potential beneficiaries in the future.

Con #2: Trusts have an expiry date

You’d think a trust would be an indefinite part of your family’s security. However, nothing lasts forever and thanks to the “rule against perpetuities”, most trusts have a shelf-life of 80 years.

This means after 80 years (or whichever date is specified in your deed), your family trust will vest and the assets will automatically be distributed among the beneficiaries. In many cases, this triggers a capital gains tax or GST event, which means significant taxation could be owed to the Federal Government.

Naturally, this has caused some anxiety for baby boomers and investors around Australia! Unfortunately, once a trust has been created, it is very difficult to change the vesting date to a date later than specified in the trust deed. Legal advice is required in this regard.

If you’re thinking about starting a trust or you’re concerned about the lifespan of your existing trust, we recommend getting in touch with a financial planner or an accountant for more advice on the issue.

There are various pros and cons to starting a family trust – so talk to a professional about your options first

A discretionary trust can be a worthwhile structure for families who want to protect and invest in their wealth. A trust can be used to protect assets like money, businesses and investment properties, plus a trust can help protect against divorce, death and bankruptcy.

However, trusts can also be complicated and have a specific shelf-life of up to 80 years, meaning the protection of family funds isn’t indefinite – even after paying administration and set-up fees!

Starting a trust has advantages and disadvantages for all families – so we recommend booking in some time to discuss options with one of our accountants.

At A Squared Advisers, we have extensive experience in structuring for wealth accumulation, so we can provide the expert advice you need to confidently start or manage a family trust.

Get in touch with the team from A Squared Advisers in Newcastle to discuss the pros and cons of starting a family trust. 


Image: Pexels

3 Need-To-Know Differences Between Accountants & Bookkeepers

So, you’re looking for someone who can manage your business’ finances.

You want someone who has professional experience recording and understanding the cash flow of the business, who can provide advice about the state of your finances, and can help make decisions that will make (or break) your business.

If this “someone” has taxation experience – even better!

So… are you looking for a bookkeeper or an accountant?

To the untrained eye, bookkeepers and accountants might seem like the same thing. Both deal with finances, both roles require at least a basic understanding of accounting, and both generate reports regarding financial transactions.

However, sometimes bookkeeping and accounting can be quite different. In this blog, we’re going to clear the air about bookkeeping and accounting, so you can make an educated decision about what level of financial management you need for your business.

#1. Bookkeepers record financial data – accountants analyse it

The big difference between a bookkeeper and an accountant is how each profession handles financial data.

Bookkeepers, for example, record, maintain and measure financial transactions within a business. Their role is to make sure your business runs smoothly; there needs to be a comprehensive record of money coming in and money going out to better understand how successful your business really is.

Enter the humble accountant, stage left.

Where bookkeepers record business transactions, accountants summarise, interpret and analyse financial data so business owners can make important decisions about their businesses, for example whether you need to scale up or downsize your staff, or whether you need to cut back on unnecessary purchases.

Essentially, bookkeepers maintain records and the payroll, whereas accountants help to understand your financial situation and help you make smart decisions about your business.

#2. Bookkeepers have an administrative role – accountants help with audits and advice

It’s time to dig down into the details.

Bookkeepers and accountants actually have very different roles. For example, bookkeepers have an administrative role – in a regular business, you might find a bookkeeper running and maintaining the payroll system, processing invoices, and reviewing your accounting systems.

Here’s an idea of what a bookkeeper’s role involves:

  • Processing invoices, receipts, payments, and other financial transactions
  • Processing and maintaining your payroll system
  • Reconciling bank accounts
  • Preparing reconciliation reports
  • Managing your accounts receivable and accounts payable

Here’s an idea of what services an accountant can offer:

  • Tax advice and planning
  • Assistance establishing a business
  • Auditing
  • Corporate reporting and compliance
  • Cash flow forecasting
  • Structuring for asset protection
  • Budgeting
  • Preparing financial statements and income tax returns

#3. Different levels of training are required to become an accountant vs a bookkeeper

There’s no arguing there are crossovers between accounting and bookkeeping.

To become a bookkeeper, you’re recommended to learn the basics of accounting and even take a few accounting courses before becoming qualified for the job. Plus, bookkeepers are expected to have a decent understanding of mathematics and have some experience in an administrative role.

To become an accountant, you must have at least a bachelor’s degree or, for a higher level of authority and expertise, you can become a public accountant.

Accountants must also meet the strict requirements of the accounting code of practice. There are three professional accounting bodies that manage accountants in Australia – the Institute of Public Accountants (IPA), CPA Australia (CPA) and Chartered Accountants Australia & New Zealand (CAANZ).

The minimum qualification for the CPA and ICAA is a bachelor’s degree in accounting. This is a starting point for further study. This ensures Australian business owners get the best possible financial advice and management possible.

What if I need a combined accounting and bookkeeping service for my small business?

Throughout this blog, we’ve highlighted the big differences between bookkeepers and accountants, from training, to roles within your business. However, it is possible for an accountant to take on both roles and provide you with all the financial support you need to successfully manage your business.

At A Squared Advisers, we’ve combined our expert accounting services with bookkeeping, so we can help businesses of all shapes and sizes throughout Newcastle & the Hunter.

Our team can help manage your finances, collect and analyse financial data, implement an outsider’s perspective to interpret this data, and provide sturdy, trustworthy advice regarding your next steps as a business owner.

Want to talk to a local accountant who speaks your language?

A Squared Advisers is one of Newcastle’s top choices for taxation and financial advice, superannuation management and retirement planning. We’ve been helping local business owners keep their finances afloat for seven years.

Get in touch with Newcastle’s top team of accountants at A Squared Advisers. We can provide trusted advice about your finances.

5 reasons Xero is a must-have for your business

To be a savvy business owner, you need to make smart decisions. One of the smartest decisions you can make is to get your finances sorted. New technology and software makes this easier to do than ever. We recommend talking to your accountant about Xero, cloud-based accounting software that ensures your business finances are on the right track—and that you’re always in the driver’s seat.

Here are five reasons Xero is a must-have for your business.

  1. It gives real-time data, so you can stop flying blind

Do you know what business funds are available to you right now? You shouldn’t have to request a lengthy report from your accountant every time you need quick financial data. Get rid of outdated accounting systems and start streamlining your finances instead. Xero allows you to quickly see real-time data, so you know whether that invoice was paid on time, can easily and instantly settle expenses, and always invest confidently based on current data.

  1. You can log-in anywhere, from the office to the airport

So can your employees, business partners and accountant. Plus, they’ll only see the information that’s relevant to them. Employees can easily submit leave requests and pay slips. Accountants can gauge your financial health in real time. And you can see how your business is tracking at a glance, knowing where your funds are going so you can make smart business decisions on the go.

  1. It remembers your financial obligations, so you don’t have to

Peace of mind is a wonderful thing. Xero remembers your financial deadlines and obligations, helping you avoid nasty fines and penalties—and taking away that niggling “what have I forgotten?” feeling that many busy business owners know well. Xero can ensure you have super set aside, that your pay slips are compliant, and that your business activity reports are accurate and legal.

  1. It connects with industry apps, giving you tailored solutions

Every business and industry is unique. Many industries have great apps that solve business needs and save you time and money. Xero connects with more than 500 of them, so your financial management is all in the one spot and you get a clear overall picture of your financial health. Take a look at this extensive list of compatible apps.

  1. It automates your finances, freeing up your time and attention

As the business owner, your time is invaluable. You want to use it strategically, investing in growing your business and building great customer relationships. And with Xero, you can focus on doing just that. Your finances will be automated and error-free, so recurring invoices and credit card installments are paid on time, and bank transactions are imported automatically. This means you’ll spend less hours looking at numbers on a screen, and more time keeping your business thriving.

How could Xero benefit your business? Call us for a chat on (02) 4959 3882 or send us an email.