“It seems incredible that some small business owners pay more tax than others although they produce the same income, yet it’s true.”
As a Small Business Owner you always need to find ways to pay less tax, because what you don’t give to the taxman will boost YOUR profits and create YOUR wealth, not that of the Commonwealth.
It seems incredible that some small business owners pay more tax than others although they produce the same income, yet it’s true.
You may think that your accountant’s only job is knowing how to reduce your tax bill, and that’s true to a point. Tax knowledge and advice is important, but I also think that your accountant’s job is to get to know your business, understand why you’re in business, where you want to go with it and what kind of wealth aspirations you are aiming for with your business profits. You see, when you take a holistic approach to look at your business venture and engage in year round tax planning, the tax saving opportunities just pop up and are easy to implement and identify.
Your accountant should also be able to advise you on another crucial questions that arises when you first start out and as your business grows: “What structure should my business have?” If you’ve been in business for a few years you may have outgrown your current business structure and could benefit hugely by setting up a company for your business. So let’s find out about the pros and cons of a company structure.
A company is a separate legal entity altogether from its members and its directors. Therefore, in a legal sense, you are not your company and your company is not you. A company will have its own assets and pay its own tax.
A company should also have its own bank accounts separate to the accounts of the owner(s).
The company tax rate is 30% which is more attractive than the 46.5% (including the Medicare levy) which is paid by individuals in the top marginal tax bracket. The 30% tax rate makes setting up a company a potentially important tax planning strategy. The core roles in a company are the director, secretary and shareholders. In small companies these roles can be performed by the same person.
A director is an office holder that runs a company.
A secretary is appointed by the directors and is responsible for administering and maintaining the records and correspondence of the company.
Shareholders each own a portion or share of a company.
A company structure can provide many beneficial tax deductions but it is not always the optimal structure. A good tax plan will weigh up the options effectively. There is often a loss of tax benefits under a company structure, in particular when your company disposes of an asset such as goodwill, shares or business premises. Even if a company holds an asset for more than 12 months, it is not entitled to the 50% discount on capital gains which is available to individuals and trusts.
Please Note: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
By Robert Bauman, AD Hamilton & Associates