Over 85% of business owners are paying too much tax.

During a recent study we conducted, we found that the majority of businesses paid more tax than necessary – sometimes even tens of thousands more.

The reason?

Because many businesses are not set up in a way that takes advantage of smart tax-reducing strategies – most commonly, correct business structuring.

Using a tax-effective business structure can shave thousands (even tens of thousands) off your annual tax bill, in a completely safe and legal way.

Companies and individuals are taxed at different rates.

For a business owner paying him/herself a salary of $400,000, they would be taxed $161,097 for that year. Instead, if they utilising the power of tax-efficient company structures, that tax bill could legally be reduced to $110,000 – saving over $51,000 in taxes!

And what would an extra $51,000/year add to your life? Annual family travel? Home renovations? Business expansion? That’s how effective a simple change can be at reducing your taxes and increasing your total take-home pay.

It is worth taking the time to find a skilled accountant who understands the ins-and-outs of how to use structuring to minimise your liability.

Setting up the right business structure is one part of the equation. Understanding how to access and move money around is another, and it’s why the use of trusts and investment companies are so critical.

A trust can be set up fairly easily and doing so allows you to distribute funds in a tax-efficient way.

For example:

Greg owns a construction company and currently pays himself $400,000/year in salary.

After reviewing how Greg paid himself, we were able to make some immediate changes that resulted in a huge tax reduction.

Greg and his wife were focussed on investing separately to the business. As a result, much of the $400K salary was used to fund that investment – not to support their day to day lifestyle.

We know maximising the use of smart tax planning structures would reduce their tax liability, whilst maintaining their lifestyle. In addition changing the way profits are distributed will increase the amount available for investing and reduce the tax on future investment returns.

We already determined he could reduce annual taxes down to $110,000 by utilising a different company structure. In this case, Greg reduces his pay distributes salary to himself and his wife, via a Trust fund.

 

Here’s what we did:

We stopped paying the salary to Greg. This meant the company in effect increased profits by $400,000. Tax on this $400,000 was reduced to $110,000 tax as the company tax rate is only 27.5%. This increased the amount available to fund lifestyle and investments to $290,000.

We then distributed $65,250 to Greg and another $65,250 to Bec via a trust. A total of $130,500 – to cover their lifestyle. In addition, they will each receive tax returns of $3,233 due to a partial refund of franking credits.

The remaining $159,500 – was distributed into a bucket company via the trust, to be used for investments. (Bucket companies used for investing are taxed at 30%, therefore we had to pay an additional $5,500.)

Understanding which structure would best suit your business can be confusing. It is worth taking the time to find a skilled accountant who understands the ins-and-outs of how to use structuring to minimise your liability. Schedule a complimentary consult with one of our experts, by filling out the form below.