Business Tax Planning are you on
track?
In order for tax planning to be effective it has to be consistent with the overall objectives of the
business and be acceptable in relation to anti-avoidance provisions in the tax legislation.
Tax planning is most effective when incorporated into the ongoing forecasting and planning
and evaluation of the business. Tax planning like any form of strategy is most effective when
devised early in the year. Tax planning should not just be limited to avoidance strategies but
should incorporate tax beneficial legal structure considerations as well. Tax planning should
be future orientated focusing on new and prospective legislation, micro economic
circumstances and the desired future equity structure of your business.
Essentially tax planning should firstly be focused upon the business structure. The four main
options for operation are sole trader, partnership, trust or company. Each option produces
different results and has different legal implications a company being the only option having
limited liability as a separate entity.
The Sole Proprietorship:
The sole proprietorship is the simplest and most common form of business in Australia.
Profits are taxed at the proprietor’s marginal rate and total liability of the business rests with
the proprietor. This form of business is good for personal service’s income, due to legislation
and small operations where the company tax flat rate is not feasibly justified. Disadvantages
of a sole proprietorship include limited life and unlimited liability. Other disadvantages include
limited ability to divert funds and plan for retirement.
The Partnership:
The partnership is quite simular to the sole proprietorship in structure and liability. As with the
sole proprietorship the partnership tax is calculated at the partners marginal rates and only a
limited diversion of funds can occur. The most common form of partnership in Australia is the
family partnership consisting of husband and wife. The main tax benefit of a partnership is
that income can be split between the partners to ease the tax burden. Partnerships are the
second most common form of business in Australia. Partnerships are ideal for small home
bases business that earns less than what would make the company or family trust structure
feasible.
The Trust:
The trust structure is becoming very common in Australia today. The advantage of the trust is
in its flexibility in diversifying funds. With the discretionary trust the trustee is able to distribute
taxable income to nominated beneficiaries therefore taking maximum advantage of family
members marginal rates and tax brackets. The family discretionary trust is the most common
form of trust for this reason.
The Company:
The company is a separate legal entity in it’s own right and is taxed a flat rate of 30%. The
tax advantage of a company is evident in high profitability scenarios and when the dividend
imputation system is fully utilised. Companies have limited liability and offer protection to
shareholders. Companies also have the advantage when superannuation deductions for
owner-employees are fully utilised. Companies are more costly to set up than trusts but offer
unlimited business life and the opportunity for succession to be passed to future generations.
The Superannuation Fund:
Self-managed superannuation funds have attracted a rising level of interest from Australian
residents since the new superannuation laws have been approved. Self-managed super
funds offer investors the opportunity to take their retirement into their own hands making
investment decisions and strategies for their future. Self-managed superannuation funds
have many tax advantages particularly that they are taxed a low 15% provided the
beneficiaries income remains below the current threshold. Self-managed superannuation
funds have attracted much interest particularly from small business owners. Millar & Teitzel
offers a comprehensive service in relation to Self-Managed Funds and will be happy to assist
in determining the benefits this could have in relation to your situation.
Tax Planning:
Millar Teitzel offers comprehensive tax planning strategies that incorporate each of these
business structures. While in practice it appears that an appropriate combination of company
and trust structures may be the best way to maximise both tax and non-tax advantages. It is
important to analyse the nature of your business with the help of a professional who will take
into consideration any pending tax changes.
Our knowledge of tax strategies is comprehensive in planning for your taxation affairs. We
take into consideration a range of tax legislation including income tax, GST and FBT as well
as recent tax reform measures that may be relevant.
Some of our techniques include:
 Deferring the realisation of assets that will produce a profit.
 Investing funds so that interest is not derived until the year end
 Deferring the raising of accounts interim fees for incomplete work
 Prepayments of expenses to reduce tax effect
 Identifying Bad debt that can be written off
 Selling assets to create capital losses to offset against capital gains
Our techniques and procedures are quite extensive and can dramatically improve the cash
flow of your business.
Please answer the following checklist to identify if we can assist you in this area.
Your Tax Planning Checklist
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Do you have a business plan that can determine the most appropriate structure for your
business or proposed business?
Is your present business structure working properly?
Are you aware and prepared for potential changes or tax reform measures?
Are you investing your surplus cash effectively, particularly having regard to the latest
announcements from the ATO
Are your records of acquisition and disposal of taxable assets up to date?
Can you adequately substantiate all expenditure so that all possible deductions can be
claimed?
Are you aware of the tax implications involved in buying and selling a business?
Are you aware of the impact of the major RBT measures, such as tax consolidations,
general value shifting, thin cap/debt equity rules, the small business entity tax system, the
capital allowances regime and PSI rules?
Are you informed about the possible advantages both tax and non-tax that can be gained
form having you own Self-Managed Superannuation Fund?
Please e-mail - admin@MillarTeitzel.com.au should you believe that we could assist you in
any of these areas.