Category: Tax Strategies

30 percent of companies are formed only for the purpose of investment. Long-term capital gains are taxed at 15% and, in effect, 10% for superannuation funds. Contributions for high-income earners may be subject to a surcharge. Although the GST may be considered a different tax system, it is outside the scope of this article. High-income investors frequently purchase investments in the name of a Pty Ltd firm so that their income is taxed at a maximum of 30%.

Companies, on the other hand, do not qualify for CGT deductions on capital gains that would otherwise be given to individuals. (Concessions on CGT for small businesses may be granted.)

Companies are separate tax entities that can keep their own income and assets and file their own tax reports.

Retaining and reinvesting profits in a firm is a frequent tax planning method, with dividends paid only when the shareholder’s tax bracket is less than 30% (Franking Credits usage).

Companies can be utilised to defer personal income tax by acting as a “parking” vehicle. Trusts, unlike people, companies, and superannuation funds, are not tax-paying entities. A trust is defined as a “fiduciary responsibility” between the trustee and the beneficiaries. Investments can be established in a trust’s name, but all income and capital gains must be given to beneficiaries every year or the trustee will lose control of the trust.

A “fixed” trust is one in which all beneficiaries have a definite right to the trust’s income, capital gains, and capital.

“Discretionary” trusts allow the trustee a lot of leeway in deciding how to pay distributions and can help you save money on taxes.

Income streams are taxed at marginal rates, minus a 15% tax offset for superannuation pensions. Once the fund starts paying an income stream, the earnings within the fund are tax-free (Pension Phase).

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

It is obviously not for you if you are in the lowest tax bracket(s) and do not expect to be in the higher brackets. It is mandatory for those who have discretionary trusts (Profit Distribution) and it is smart for those who do not have discretionary trusts but are high net worth tax payers to still plan their taxes.

People often get wealthy by their ability to establish a business or intelligently invest, rather than through some flashy “secret” technique. Gurus that promote the concept of “secrets” are mainly con artists. Such lectures are scoffed at by the majority of the wealthy. There is only one key secret to becoming wealthy: hire a great adviser/mentor to push you to think differently. A skilled advisor understands how to be effective.

It’s almost always about how they fit those techniques into your present circumstance; it’s just about how they fit those methods into your current scenario. For example, the financial year runs from July 1, 2018 to June 30, 2019. Tax returns are required by the 15th of May 2020 at the latest. If you have a discretionary trust, you must sign trust minutes by June 30, 2019.

As a result, the best time to start tax preparation is before June 30th, but start as soon as possible in June to ensure that solutions are implemented on time.

Qualified accountants recommend that you schedule your appointment between the end of May and the end of June to get the best outcomes.

However, there is no regulation stating that you cannot arrange your taxes at any other time.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

The existing international tax structure, which dates back to the 1920s, assigns taxing rights based on the location of physical assets, capital, and labour, as well as the source of income and taxpayers’ residence. The framework’s creators could not have predicted how much business would become globalised and digitalized.

The fast rise of the digital economy in recent years has raised questions about whether it is necessary to reform the current system of allocating taxation rights over business revenues between countries.

Because of technological advancements in telecommunications, improved internet infrastructure, and shifting social attitudes toward the sharing economy, some digital businesses have expanded their international presence significantly, often operating in countries where they have no physical presence.

These digital firms are increasingly providing the backbone for economic activity in previously primarily domestic areas, such as transportation, lodging, advertising, and retail sales.

However, as the world becomes more digital, and intangible assets become more mobile, this task becomes more difficult, especially in sectors of the economy that are most affected by digital disruption. The following are some specific challenges:

According to a static analysis, the new entrants’ market dominance is eroding Australia’s corporate tax base, since profits are increasingly recognised as being created in a foreign jurisdiction.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

You can take benefit of all the deductions and exemptions

If you are not well-educated in tax affairs, you might avoid a few available allowances, deductions, and exemptions. A reputable tax accountant would be up to date with any recent developments, and let you know when and how to take advantage of these concessions when making your tax refund.

It enhances your income flow and leads to more flexibility

When you take the correct steps in your tax bracket, you will be able to keep more money running to your household and low tax payable to the ATO. This could save you thousands of dollars per year and allow you to focus your finances on other important areas without digging into your savings.

You can stay compliant and current

When it comes to tax planning, many individuals choose to take the safer course of action as the last thing they want to appear like they are conducting tax evasion or dodgy practices. A tax accountant can look for possibilities within the tax compliance limits and provide you with the tax deduction benefits it needs to improve when making your tax return.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

The following areas have been summarised as effective tax planning, which is time critical:

Organize your income

Defer earning income until beyond June 30th, if at all possible, to avoid paying tax in the current fiscal year. This may entail deferring projects that may not have a negative impact on the firm. Keep in mind that this merely “kicks the can down the road.” However, if the current year’s revenue is substantial and the following year’s income is predicted to be low, this strategy can be quite beneficial.

Pre-pay expenses

Up to 12 months of deductible expenses can be paid in advance, bringing the deduction forward to the current fiscal year. Prepaying interest on an investment loan is one example.

Time the sale of assets to reduce taxes

The time an asset, such as investment property or a business, is sold is critical in taking advantage of various tax concessions.

Here are some to consider:

50% general exemption

Where a sale of an asset will result in a Capital Gain, ensure the time of the sale takes advantage of Capital Gains Tax (CGT) concessions. On assets kept for longer than 12 months, there is a 50% CGT deduction. Also, keep in mind that a property sale occurs in the year in which the contract is signed, not on the day of settlement.

Demand 15-year exemption

Small business owners aged 55 or older who retire and have owned a business asset for at least 15 years are exempt from paying CGT when they dispose of the asset.

Retirement exemption

Small business proprietors who own assets with notable Capital Gains outside of their super account should time the sale of the assets to lessen the amount of CGT. On the sale of an active company asset, there is a lifetime limit of $500,000 in CGT exemption. The proceeds from the sale of the asset must be put into a superannuation fund or a retirement savings account for people under the age of 55.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.               

The purpose is to reduce your taxable income so you pay less tax. And by doing so, you’ll be able to maximise the amount of money you have left over to spend on whatever you choose.

Tax planning gets great results for professionals, sole traders, business owners and others.

There’s no escaping tax. It affects every area of your personal finances, including your income, investments, superannuation, home loans, assets, and the wealth you pass down to future generations.

Topmost tax planning strategies

As part of your personal tax plan, you should implement the following strategies:

• Consider longer-term investment strategies that include borrowing moneyto buy residential property, business or shares.

• Restructure your home and investment loans and turn non-tax deductible debt into tax deductible debt so you can pay them off shortly.

• Purchase or transfer assets into family or property trusts, companies and self-managed super funds to decrease your taxable income and capital gains taxes you owe on investments.

• Salary packages your car lease, superannuation, and more to improve your take-home pay.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

·        Cash in on the capital gains tax discount. When an asset is sold, the profit is referred to as a capital gain. You’re required to pay tax on any profit as it’s treated as income. Discounts may be applied to individuals, trusts and superannuation funds, but planning is the key.

·        Create a company, as they’re a separate legal entity and are subject to different, and often lower tax rates than for individuals.

·        Start a self-managed super fund (SMSF). Fees are reduced, while contributions and investment income taxes are reduced. Profit from the unique tax-efficient investment techniques available only to self-managed super funds.

·        Claim car expenses by logging all business-related kilometres you travel.

·        Use negative gearing. Negative gearing reduces your taxable income. It offsets the losses made when the income derived from an investment property is less than the loan repayments and maintenance costs.

·      Salary package superannuation contributions. Decrease your taxable income by redirecting your salary into a super fund.

·        Plan forward. A well-conceived tax strategy will keep you in total control of your end of year tax bill – no surprises. Don’t pay more than you need to.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Because super contributions are taxed at a concessional rate of 15% in Australia, this is a tax-effective plan. This is a lower rate than the personal income tax.

Maximizing your voluntary superannuation contributions is a permitted tax deduction that can also be a substantial long-term wealth growth strategy. You can currently claim a tax deduction of up to $25,000 each year.

This is known as the concessional contributions cap.

Unused concessional cap carry forward

You may be able to contribute the unused amounts of your concessional contributions cap for a maximum of 5 years starting July 1, 2018.

For example, if you did not make any superannuation contributions in FY 2018, FY 2019, or FY 2020, you may be eligible to make $100,000 in deductible super contributions in FY 2021. For the fiscal year 2021, this might save $47,000 in taxes.

Salary packaging in a charity

If you work for a charity that is exempt from FBT, you can save money by having $15,900 of your living expenses reimbursed tax-free. These expenses include things like:

• Rental payments
• Mortgage payments
• Credit card payments
• General living expenses
• Utility bills or rates notices

Instant asset write-off and allowances

Eligible businesses can claim an instant deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use. The instant asset write-off threshold amount for each asset is $150,000 (up from $30,000) for assets first used or installed ready for use between 12 March 2020 and 30 June 2021, and purchased by 31 December 2020. For further information, consult your tax accountant, as there are other conditions that must be met.

Claim for property depreciation

Most income-producing properties are eligible for some form of depreciation. Property investors can claim a capital works deduction as well as depreciation on their plant and equipment.

Use a quantity surveyor

Quantity surveyors can assist in the preparation of a depreciation schedule in order to maximise an investor’s depreciation claim. This report’s preparation costs are also tax deductible.

Did you know there is an unintended ‘Death Tax’ in Australia?

The dependants of a deceased member receive tax-free super benefits when the person dies. Many members, on the other hand, do not have dependants and are often survived by adult children who do not receive tax-free payouts. The taxable portion of a lump-sum super death payout is normally taxed at a rate of 15%.

Members might consider utilising a re-contribution scheme, keeping a separate pension, or even pulling down on their super before they die to reduce the risk of their surviving adult children paying the “death tax.” In the event of incapacity, this involves having specific instructions in the will and any Power of Attorney.

Use your Franking Credits reasonably to reduce taxes

Franking credits can help you save money on your taxes. This is accomplished by utilising the tax paid by the corporation, which is then passed on to the shareholder in the form of a Franked Dividend. Franking credits can be used to lower the amount of income tax paid on dividends, or they can be used to get a tax refund.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.