00:01 – 00:04
Hey guys. Welcome to another episode of Business Uncut.
00:04 – 00:07
I’ve got Callum here today, one of our managers at New Wave.
00:07 – 00:13
And today we’re going to go look at the 2024 tax planning sessions that we do with clients.
00:13 – 00:15
Why we do it, why it’s important to do it.
00:16 – 00:18
Right now we’re sitting the 1st of May.
00:19 – 00:25
We started tax planning March, March, and we’re going to continue to do tax planning with our
00:25 – 00:30
clients over the next month or so with the intention of getting everything done, I guess, prior to pre 30 June.
00:31 – 00:39
So let’s just fire some questions that most clients ask is why do we do tax planning in the first place?
00:39 – 00:45
Cal Tax planning is probably the most important service that you can get from an accountant.
00:46 – 00:51
What always happens is when we get a new client come on board and we do the tax return for them
00:51 – 00:54
and we go, okay, look down your tax return.
00:54 – 00:58
Here’s your bill for x amount. 9 times out of 10 the client will ask, hey, what can I do to
00:58 – 00:59
bring that tax bill down?
00:59 – 01:03
And once the June’s happened and we’re after that year, there’s not a lot you can really do
01:03 – 01:05
to bring the tax bill down.
01:05 – 01:10
So what tax planning is, is catching up with clients before 30 June happens and looking at what
01:10 – 01:16
that tax bill might be and actually strategising with the client to see what we can do to reduce that tax payable down.
01:16 – 01:21
So that’s why I said it’s probably the most important service because it’s very important to
01:21 – 01:23
look at where you’re sitting before the year actually finishes.
01:23 – 01:27
So then that way you can have look at what strategies you can implement to bring that tax bill down.
01:27 – 01:34
Yep, it’s super important to just make sure that you have an understanding as well that each
01:34 – 01:35
year is going to be different.
01:36 – 01:39
Tax rules change, your circumstances change.
01:40 – 01:43
If we bring some examples in there, we get a whole bunch of E commerce clients that we deal
01:43 – 01:48
with and throughout the year there may be specific items that may change.
01:48 – 01:50
So for example, I met it with a client recently.
01:51 – 01:54
They had just sold a whole bunch of their cryptocurrency.
01:54 – 01:57
Their business was doing well, probably a little bit better than last year.
01:57 – 02:01
Their expectation was, you know, I’m going to have to save a little bit of tax a little bit
02:01 – 02:04
more for the actual profit that I had compared to prior year.
02:04 – 02:07
But nothing else is possibly going to change too much.
02:07 – 02:15
We had a look at it and we saw there that being E Commerce, they love everything that’s digital. Cryptocurrency sales for them.
02:15 – 02:18
They thought, well, I didn’t actually make any sales.
02:18 – 02:20
We were just transferring from one cryptocurrency to another.
02:21 – 02:25
Well, unfortunately, the ATO looks at that as an actual sale itself.
02:25 – 02:28
So you got to be careful with these sort of things because a lot of the time what will happen
02:28 – 02:35
is that when you look at your ATO reports, the ATO will generally bring up a report after the
02:35 – 02:40
30th of June that says, here’s the income that you made from any wages that you had, any dividends.
02:40 – 02:43
And then now what’s happening, and it’s been happening over the last couple of years, is that
02:43 – 02:46
they’re identifying cryptocurrency in there as well.
02:46 – 02:47
So that’s just one example.
02:47 – 02:51
Any other sort of examples that you’ve come across where a client probably had a bit of a shock,
02:51 – 02:57
but it was, at least it was a shock before the 30th of June in terms of their tax?
02:57 – 03:03
Yeah, definitely. I actually met with a client today and we did tax planning for him, and his business has significantly grown.
03:03 – 03:09
The revenue for the previous year was around 150,000, and up until the end of March, he’s already made 350,000.
03:10 – 03:14
This client’s a sole trader, used to his tax bill being around, you know, 10 to 20 grand right
03:14 – 03:18
now, after he’s already paid some installments, he’s looking around $90,000.
03:18 – 03:21
So he caught up today and he’s like, well, I didn’t realise it’s going to be that much.
03:22 – 03:26
He understood his business had grown, but didn’t realise that’s how much the, the tax bill had grown.
03:26 – 03:31
Because he was a sole trader, the amount of tax he was paying was growing also in proportion
03:31 – 03:32
because the tax rates are obviously going higher.
03:32 – 03:38
So that’s just a prime example of some, like, why tax planning is so important to catch up with
03:38 – 03:42
clients is to identify, okay, well, what’s changed, like you just mentioned before in previous
03:42 – 03:45
years, and then look at what we can do before the year finishes to bring it down.
03:45 – 03:49
Yeah, exactly right. And people probably asking, well, what’s the difference between, you know,
03:49 – 03:51
just, we’re going to pay that anyway after the 30th of June?
03:51 – 03:55
Well, the biggest difference is you now know what the potential tax is going to be.
03:55 – 04:00
Yes, we’re going to sit there and try and help you to minimise that tax as much as legally possible,
04:01 – 04:07
but at least you now have a strategy on how to tackle the tax implication that’s coming rather
04:08 – 04:10
than coming up to May in the following year.
04:11 – 04:15
Preparing the tax return and going, I’ve got another $60,000 of tax to pay.
04:16 – 04:21
So we’ve essentially given this client a one year head start.
04:21 – 04:26
If they didn’t have that cash, which we can go into that later on how to save tax properly.
04:26 – 04:33
But if they didn’t have that, at least they’ve got 12 months to try and figure out how to do that 100%. And so super important.
04:33 – 04:35
I got a couple of things on the list here, like why to do tax planning?
04:35 – 04:40
You know, if you’ve sold assets in the, in the financial year, whether that’s property, you
04:40 – 04:43
might have a commercial property, might have a residential property, crypto, like I mentioned
04:43 – 04:49
before, shares or even selling your business if you have made changes in your shareholding as well.
04:49 – 04:57
So for example, you’ve brought, you’ve brought in a business partner or you’ve, you’ve got a
04:57 – 05:00
employee that’s becoming a now shareholder in the business.
05:01 – 05:04
That could be a potential capital gain there that you may not have expected.
05:04 – 05:08
You may have thought, well, I’m just going to give it to them because I’m a nice person.
05:08 – 05:12
But actually there’s a value attached to that share and there’s a potential capital gains.
05:13 – 05:14
So those are sort of some aspects.
05:14 – 05:19
Are there any other things, Cal, that you think that, you know, if there are, what sort of other
05:19 – 05:23
major changes should clients be looking at for tax planning?
05:25 – 05:27
In what way? Like in terms of structuring?
05:27 – 05:35
Yeah, just, just things that might, that may allow our listeners to go, well, I actually have
05:35 – 05:38
done that in the year and they may have not thought about it because all they’re thinking about
05:38 – 05:44
is income and business and they may not realise there’s actually a potential tax consequence.
05:44 – 05:49
Yeah, yeah. Okay. So you mentioned before, like shareholding changes, what we do see during
05:49 – 05:52
the year is quite commonly restructured.
05:52 – 05:56
So even if you’re not in a company, but you may have changed from a sole trader to, let’s say
05:56 – 06:01
a trust or a sole trader to a company that’s a big one or even into a different structure that
06:01 – 06:03
can still trigger a capital gains tax event.
06:03 – 06:10
And you may need to look at, well, okay, did I actually sell a physical business that has a dollar value to it?
06:10 – 06:12
If so, then there may be tax on that.
06:12 – 06:15
So that is something that you do have to plan for.
06:15 – 06:20
If you’re doing tax planning, even if you’re moving vehicles and so forth around, you may have
06:20 – 06:22
been a sole trader and moved into a company.
06:22 – 06:27
Even if you did that restructure correctly, if you still transferred assets from when you’re
06:27 – 06:31
a sole trader into that company or trust, then you need to look at the tax consequence from that as well.
06:32 – 06:36
You mentioned the big ones like cryptocurrency, investment property shares.
06:37 – 06:42
They’re probably the main things that I guess could catch people off guard other than your normal
06:42 – 06:45
income to I guess be mindful for the tax planning.
06:45 – 06:50
But even things like what I have seen more recently is people moving overseas.
06:50 – 06:51
Yep.
06:52 – 06:56
Now that you know we’re in the digital kind of space, it seems to be more common when you do
06:56 – 07:01
exit Australia or move into a different country and change your place of residency, that can
07:01 – 07:02
have an impact on tax as well.
07:02 – 07:08
So again, it really just points on the importance of actually speaking with your advisor before
07:08 – 07:12
the year finishes just to look at all these different things that may have happened during the
07:12 – 07:14
year to make sure that you’re covering all your bases.
07:15 – 07:19
Some other items that we probably want to touch base on as well.
07:19 – 07:23
If, if you feel as though these things have happened in your life so, you know, changes in your
07:23 – 07:28
life circumstances, if there has been a marriage breakdown and the settlement has taken place,
07:29 – 07:33
you may need to just get a bit of advice on that because there may be some hidden taxes around there as well.
07:33 – 07:37
And again, you don’t want to receive the money.
07:37 – 07:41
And then after the 30th of June realise you have a giant tax bill.
07:41 – 07:49
Children turning 18, there are all different, I guess different laws and regulations obviously
07:49 – 07:55
around, you know, just distributing to children and those over 18 even more so over the last couple of years.
07:55 – 07:59
But that’s probably another segment in itself.
08:00 – 08:04
And then looking at potential new investments or business or businesses.
08:04 – 08:10
Like if you are saying that, that you want to eventually sell your business or look at buying,
08:10 – 08:15
I don’t know, machinery or something that will help grow the business, it’s better to have a
08:15 – 08:17
look at the tax consequences now and plan out for it.
08:17 – 08:23
Even if it’s not going to happen within this financial year, it may be beneficial to do so.
08:23 – 08:25
So it’s always a good idea to do that.
08:25 – 08:26
Yeah, Just expanding on that.
08:26 – 08:32
Something I’ve actually also seen more as of late with the investment and business side is property development.
08:32 – 08:32
Yeah.
08:32 – 08:35
Getting a lot of clients on the.
08:35 – 08:36
Gold Coast at the moment.
08:36 – 08:38
Yeah, yeah. Reaching out to us and saying, okay, look, I want to do this development.
08:38 – 08:40
How does tax work around that?
08:40 – 08:43
And a lot of the time, clients are under the belief that it’s always going to be capital and
08:43 – 08:49
you get, you know, the 50% CGT discount, don’t have to worry about GST and or sometimes clients
08:49 – 08:53
even believe you know, if I leave it for long enough, it could be my PBR completely tax free
08:53 – 08:55
under the main residence exemption.
08:55 – 09:00
But as we’re looking into this more so with our clients, nine times out of 10, that’s more seems
09:00 – 09:06
to be on the side of it being a property development and a business as such, as opposed to CGT.
09:06 – 09:12
Now that’s not always going to be the case, but just due to the short time frame and just the
09:12 – 09:16
intent of the overall development and other circumstances, clients are more leaning toward that
09:16 – 09:19
and they weren’t really planning for that previously.
09:19 – 09:24
So, you know, it’s something that we have to be really mindful of in the new kind of stage that
09:24 – 09:31
we’re in with developments and property as such, because it can catch a lot of people off guard
09:31 – 09:35
because if you’re running well, if it’s proven to be a business, then you have to be mindful
09:35 – 09:42
of your income tax and it can go up quite significantly compared to CGT because you don’t have as many tax concessions.
09:43 – 09:45
Also you have to be mindful of GST.
09:45 – 09:48
A lot of people when they’re doing developments always seem to forget about GST.
09:49 – 09:55
Depending on how you know it is classified, the GSA can be quite significant and it can be 1,
09:56 – 09:57
1/11 of the sale price as well.
09:57 – 09:58
Yeah, 100%.
09:59 – 10:00
Yeah. Definitely mindful of that.
10:00 – 10:06
I think so. I think it’s just more about having the understanding or having the thought in the back
10:06 – 10:10
of your mind that I’m going to go into some type of significant investment, whether it’s property
10:10 – 10:15
or whatever it may be, any of those triggers, come and talk to your accountant because that
10:15 – 10:19
could turn into a bit of a mess in terms of tax.
10:19 – 10:27
No one wants to invest a million bucks into a project and then lose, you know, half of the profits. It’s just, it’s.
10:27 – 10:28
Why would we do that?
10:28 – 10:29
We work so hard for our money.
10:30 – 10:34
And so if we can minimise that as much as legally possible, then why not?
10:35 – 10:37
One last aspect I wanted to talk about is Div 7A.
10:38 – 10:45
So for those that aren’t across Div 7A, basically what that means is if you have a company and
10:45 – 10:50
you take money out of that company, either you know, from yourself or you transfer to your trust,
10:51 – 10:55
basically what happens is you owe that company back that money.
10:56 – 11:00
Now, there are certain rules around this and if we don’t follow the rules correctly, what can
11:00 – 11:06
happen is that some tax consequences, some tax consequences can occur, right?
11:07 – 11:15
And so these tax consequences can be quite detrimental in terms of the overall amount that you’re going to pay.
11:15 – 11:19
And I’ve seen it time and time again and you’ve probably come across more than I have. Cal.
11:19 – 11:25
Where clients that haven’t done tax planning have ripped out money out of their business and
11:25 – 11:30
essentially ripped it out without paying the additional top up tax that they need to. Because that’s what happens.
11:30 – 11:34
The company pays for the tax, you rip it out and sometimes there’s more tax that you need to pay, but they don’t.
11:36 – 11:39
And if they don’t plan for it, what do you usually say happens?
11:41 – 11:42
It could be a range of things.
11:42 – 11:47
A lot of the time, like you said, they don’t understand what Division 7A is, which rightfully
11:47 – 11:48
so, it is quite complex.
11:48 – 11:50
But yeah, a lot of time they don’t understand it. They take it out.
11:50 – 11:53
They actually don’t really know how it works.
11:53 – 11:59
They sometimes think it’s been treated as a wage or they think I can put the money back in whenever I.
11:59 – 12:00
Want to think it’s theirs.
12:00 – 12:03
Yeah, exactly right. Or it could be a number of different things.
12:03 – 12:08
So usually the conversation will start with identifying what they’ve done and explaining it to them.
12:09 – 12:13
Where it can be really tricky is if their company hasn’t actually paid any tax.
12:13 – 12:13
Yeah.
12:13 – 12:17
Because if we don’t have any franking credits or tax that they can claim back on, then they’re
12:17 – 12:19
not even paying just the top up tax.
12:19 – 12:21
They’re going to be paying the full tax at their marginal tax rate.
12:22 – 12:25
So that can really surprise them and catch them off guard.
12:25 – 12:30
If they have paid the company tax and that’s good, at least we can look at doing a dividend
12:30 – 12:34
or at least doing a minimum repayment back into the company to meet that repayment.
12:34 – 12:35
But sometimes they’ve spent the money.
12:35 – 12:38
So if they’ve spent the money then they can’t put that money back in.
12:39 – 12:42
If they’ve spent the money to the degree where they haven’t even saved for the top up tax, then
12:42 – 12:45
that’s generally where they can be in quite a bad situation.
12:45 – 12:51
Because if they’ve taken that money out and they have spent all the money and haven’t saved
12:51 – 12:55
any in their personal names and then they, let’s say that figures, you know, a million dollars.
12:55 – 13:03
For argument’s sake, the top up tax can be anywhere between 0 to 17% depending on what their marginal tax rate is.
13:03 – 13:06
So you’re looking at 17% on a million bucks, could be 170,000.
13:06 – 13:10
So if you haven’t saved for that, it can be quite detrimental.
13:10 – 13:15
Yep. So the key things to look out for, if you look into your Xero account, look at your financial
13:15 – 13:19
statements, you’ll see on the balance sheet, or it could even be in your profit and loss if
13:19 – 13:20
it hasn’t been coded correctly.
13:21 – 13:25
What you’re trying to identify are amounts that you’ve taken out of the business personally
13:25 – 13:31
or to your trust or to an associated trust of yours that hasn’t been put through the payroll system.
13:32 – 13:39
So essentially, if you’ve done this, I would highly recommend that you contact your accountant.
13:40 – 13:42
And these are for companies out there, right?
13:42 – 13:46
So if you have a company and you’ve taken money out and you haven’t put it through the payroll
13:46 – 13:53
system and it’s sitting there as a loan back to the company, then you potentially have a div
13:53 – 13:56
7A issue, a director’s loan issue.
13:56 – 14:01
So definitely get that checked out because we have seen some of these files, we’ve inherited
14:02 – 14:07
a client’s files over the last seven years and they are absolutely huge.
14:08 – 14:14
And unfortunately this is something that the ATO are cracking down on quite severely.
14:14 – 14:20
So it’s all about management planning and how to get across this in the best way. Cool.
14:21 – 14:26
Now let’s talk about tax minimisation strategies specifically.
14:27 – 14:28
Well, so not so much strategies.
14:28 – 14:33
What are the key items that we need to look out for in the 2024 year, bearing in mind that we
14:33 – 14:37
have two months basically until the 30th of June?
14:39 – 14:43
Look, one thing I’m going to note is the depreciation rules have changed.
14:43 – 14:47
So a lot of people would have seen previously temporary full expensing or instant asset write
14:47 – 14:49
off up to unlimited amounts.
14:49 – 14:54
And what they were previously is you could buy an asset and essentially claim the whole thing
14:54 – 14:57
back on tax, which would reduce your income significantly.
14:57 – 14:58
Yeah, that’s what you’d pay your tax on.
14:58 – 15:02
So as of the 2024 year, they have made some changes to that.
15:02 – 15:09
So they’ve gone back to the concessions, which was the instant asset write off versus the temporary full expensing.
15:09 – 15:15
So anything $20,000 or less you can still write off, which is great, but anything over $20,000,
15:15 – 15:21
if you’ve elected for the simplified depreciation rules, you need to add that to what’s called the small depreciation pool.
15:21 – 15:29
And you claim a flat 15% of that asset in the first year and then 30% of the remaining balance every year on after.
15:30 – 15:33
So that’s quite a significant change because a lot of clients are still under the belief that,
15:33 – 15:39
you know, I can buy large pie machinery or a motor vehicle, anything of that nature.
15:39 – 15:41
That’s over 20,000, still write the whole thing Off.
15:41 – 15:43
Which unfortunately isn’t the case anymore.
15:43 – 15:45
Yeah, it’s only 20 grand or less than great.
15:46 – 15:47
So what’s it look like for tax terms?
15:47 – 15:52
Let’s say someone wants to buy a piece of equipment for their E commerce business because they’re
15:52 – 15:56
going to buy a, I don’t know, packaging equipment. It’s $100,000.
15:56 – 15:57
They buy it before the 30th of June.
15:58 – 16:06
How does that look like in the 2024 financial year compared to the 2023 financial year for tax purposes?
16:06 – 16:07
And let’s assume a company.
16:07 – 16:14
Okay, cool. So it’s a company, let’s say its profit was 200,000 before it bought the piece of machinery.
16:14 – 16:16
Spends a hundred thousand dollars on the machinery.
16:16 – 16:20
So what is going to happen is their profit is going to reduce from 200 down to 100.
16:20 – 16:21
This is in the last financial year.
16:21 – 16:23
This is in the last financial year, correct?
16:23 – 16:23
Yep.
16:23 – 16:25
Which then they’d pay their tax on.
16:25 – 16:28
So as opposed to paying 25% on 200,000 which is 50.
16:28 – 16:28
Yeah.
16:28 – 16:33
They’re now going to be able to claim the 100,000 and their profit will be 100,000 after that
16:33 – 16:37
deduction, which they all don’t pay 25% on. So 25 grand.
16:37 – 16:41
So previously that did a $25,000 tax saving.
16:41 – 16:48
Now because now with the new rules, because it’s over that $20,000, they can only claim 15% of that 100,000.
16:48 – 16:52
So they’re only going to be able to claim 15,000 of the $100,000 expense.
16:52 – 17:00
So their profit’s going to reduce from 200,000 down by 15 to 185,000, which then they’ll subsequently pay their tax on.
17:00 – 17:02
So which is significantly higher.
17:02 – 17:05
Yeah, massive difference. Massive difference. So, yeah.
17:05 – 17:10
So in that example there, you were saying there’s about a 15, 15K deduction. Right.
17:10 – 17:13
And on the 25%, you know, it’s.
17:13 – 17:21
So it’s so far from the $25,000 tax savings saving that you were getting previously. It’s nearly 20 grand.
17:21 – 17:23
It’s more than 20 grand difference.
17:23 – 17:29
So you got to be very strategic and about what you are purchasing and if you really need it
17:29 – 17:33
for your business, go ahead and buy it because you do need it and it’s generating income.
17:33 – 17:34
But if it’s one of those pur.
17:34 – 17:38
Where you think, oh, I’m going to buy, I’m going to buy ute because I think it’s going to be
17:38 – 17:41
a great deduction for my business this year.
17:41 – 17:43
I don’t really need it, just want one.
17:43 – 17:48
Well, it’s probably A good idea to have a think about the tax consequence around that.
17:48 – 17:53
A lot of questions I’m also getting around is EVs electronic vehicles.
17:53 – 17:59
So are they, would you say they’re a great good asset if you’re needing a car and again, if
17:59 – 18:02
you’re needing it, don’t just go out and buy one.
18:02 – 18:06
But if you’re needing something to depreciate it, would you say it’s a good way to go?
18:06 – 18:08
Right now, they’re a great way to go.
18:08 – 18:14
So just to recap or refresh the audience, if you have a company or a trust and you do buy a
18:14 – 18:20
vehicle in there, if that vehicle is not an exempt vehicle, then your company or trust is likely
18:20 – 18:23
going to be liable for what’s called fringe benefits tax.
18:23 – 18:29
And fringe benefits tax is additional tax at the entity pays when it’s providing the employee
18:29 – 18:31
or the owner a fringe benefit.
18:31 – 18:37
So that’s quite a significant impact when you’re, you know, running a business and you’re buying one a vehicle. Yeah, thinking.
18:37 – 18:44
And you get the, you know, the depreciation deduction, the, the fueling, fuel servicing, insurance deduction.
18:44 – 18:49
But then you do get a FBT bill at 31 March.
18:50 – 18:58
If you buy an EV, depending on the amount that the EV costs and the how the EV operates, it
18:58 – 19:00
can be exempt from fbt.
19:00 – 19:05
So it can be quite a significant saving if you do want to go down that route with EVs as well.
19:05 – 19:10
The cost limit that you can depreciate on an EV is higher as well compared to other cars.
19:10 – 19:14
So like you said before, if you need to buy a car and it interests you to buy an ev, then there’s
19:14 – 19:18
definitely more favourable tax benefits from doing so versus a general car.
19:18 – 19:22
Yep. But again, just don’t buy it just because you think it’s, it’s going to save you tax.
19:23 – 19:24
Do it because you need it.
19:25 – 19:33
And then tax is the, I guess the secondary reason why you purchase that ev. Cool. Very good.
19:33 – 19:39
So other things we can do key items for 2024 pay super before 30 June.
19:39 – 19:43
Generally, we advise that if you’re paying super for your employees, we try to calculate what
19:43 – 19:48
that is and making sure that the payment is done by at least 21 June.
19:49 – 19:54
This gives you time to actually lodge the necessary documents, the pay and it needs to be in
19:54 – 19:56
their super accounts before 30 June.
19:57 – 19:59
A lot of people say, well I’m going to wait until the 30th of June.
19:59 – 20:01
They try and do it and then they miss out on the actual deduction.
20:02 – 20:08
Probably a great time now just to put it into your calendar, pop it in there, even put it in
20:08 – 20:15
the 15th so you can start preparing and then lodge by the 21st. What else Cal.
20:17 – 20:18
In terms of key changes?
20:18 – 20:21
Yeah, anything for 2024 financial year. So
20:24 – 20:28
another one would probably be, you know, if you are going to pay bonuses out to your employees
20:28 – 20:32
and you know they’re getting a bonus again, do that before the 30th of June because you’ll be
20:32 – 20:39
able to claim the deduction in this financial year rather than, you know, waiting till the next financial year.
20:39 – 20:45
Some people may just say, well you’re just moving the actual tax into a different financial year. Yeah, yeah, that’s true.
20:45 – 20:54
But also you are, you’re then preparing for cash flow influxes and ins and outs basically so
20:54 – 20:56
you can actually plan a little bit better.
20:58 – 20:59
Like everything, cash is king.
20:59 – 21:04
The more cash that you have within your business, especially when it comes to tax time, then
21:04 – 21:08
you can use that to grow your business, buy more inventory, advertising, whatever it may be.
21:08 – 21:13
But planning is key always. As always.
21:13 – 21:16
Motivica log books and then I wanted to talk to you about this one.
21:16 – 21:19
Just making sure that the trustee is up to date.
21:19 – 21:24
Been going through any trustee seeing any that are significantly out of date or need to be updated at all.
21:24 – 21:33
Yeah, we are. A lot of the time we’ll see trust aids where the schedule needs to be updated.
21:33 – 21:39
So it could be anything to do with, you know, we’ve got the asset person of a, of a family group,
21:39 – 21:46
the trustee of a trading trust that obviously, you know, breaches that risk versus asset relationship profile.
21:47 – 21:52
It could be a matter of the beneficiaries need to be updated on the trust trustee not allowing
21:52 – 21:54
us to do, you know, tax effective distributions.
21:55 – 21:57
It can be definitely a range of things.
21:57 – 22:01
So it’s something that we do review at the end of each year to make sure it is up to date and
22:02 – 22:06
that we can do the most tax effective distributions from that trust.
22:06 – 22:11
Yeah, but yeah, even the deed themselves, how they can be written may need to be updated.
22:11 – 22:16
It’s probably more of a question for a lawyer but definitely something to, you know, ask the question about.
22:16 – 22:16
Yeah.
22:16 – 22:22
And look into every relatively regularly to make sure that it is providing you the best outcome.
22:22 – 22:29
Yeah, I think we’ll do another episode on just deeds themselves and how to utilise them as much as possible.
22:29 – 22:36
But also get a lawyer in to discuss the actual legalities around asset protection and all those
22:36 – 22:40
sort of items that will be very, very beneficial to business owners.
22:40 – 22:41
We’ll do that in another one.
22:42 – 22:45
You were talking about, you know, optimising the tax rate.
22:45 – 22:52
And so a lot of business owners, specifically those that are in companies, will automatically
22:52 – 22:57
assume that everything is taxed at a 25% tax rate. They’re going.
22:58 – 23:02
And just looking at the website and seeing that companies get taxed and my business is going
23:02 – 23:06
to get taxed at 25% and then that’s it.
23:06 – 23:10
That’s not necessarily how it works, unfortunately.
23:10 – 23:14
The Australian tax legislation is quite complex.
23:14 – 23:19
And so we generally like to put together a tax, a group tax summary.
23:19 – 23:25
Are you able to, you know, tell us about that, Cal, and how you have what you’re doing at the
23:25 – 23:30
moment to structure those in the most efficient way and getting the client to understand what it all means?
23:30 – 23:37
Yeah, no, definitely can. So, like you said, companies do pay a flat 25%, but what the individuals
23:37 – 23:42
pay themselves will still dictate what that average tax rate is across the group.
23:43 – 23:49
If the owners have paid themselves quite a handsome salary or they have taken large sums of
23:49 – 23:55
money out via Div 7A as a loan, Div 7A and we have to take up like a dividend or something of
23:55 – 23:59
that nature, it can still significantly impact the overall tax rate.
24:01 – 24:06
We will always try to look at the whole group from a holistic picture to see what we can do
24:06 – 24:10
in terms of moving money around to try and bring that effective tax rate down.
24:10 – 24:17
But ultimately it’s going to come back to what has the business owners done with the cash? It can always.
24:17 – 24:22
It’s usually a balance between, okay, well, we need some cash available in the personal names
24:22 – 24:23
as well as trying to minimise tax.
24:23 – 24:29
So, yes, 25% is the company tax rate, but it will depend ultimately on what their owners have
24:29 – 24:32
done with the money and what they intend to do with the money as well.
24:32 – 24:38
Yeah. So what we tend to do is provide clients after getting all of their information, figuring
24:38 – 24:41
out, well, what’s happened in the year, what’s tax going to look like?
24:41 – 24:47
Then we come up with an option first and foremost and go, well, what is your overall effective tax rate?
24:47 – 24:54
And in simple terms, that the effective tax rate is basically all of your group’s tax liability
24:54 – 24:58
divided by the taxable income that you have in the group.
24:58 – 25:03
And then, so that is what you should be really focusing on if you are really concerned about
25:03 – 25:05
how much tax you’re paying. Right.
25:05 – 25:11
Because again, Callum had mentioned that some people may have taken out a $500,000 wage.
25:11 – 25:18
And of course, it’s going to be hard to minimise that and turn that into a 25% effective tax rate.
25:18 – 25:23
But the idea is, how do we minimise the effective tax rate overall for the entire group?
25:23 – 25:30
Now, everyone has different goals, both in business and personally.
25:30 – 25:35
And so the way that you should be doing your tax planning or asking your accountant to do it
25:35 – 25:43
is to make sure that the outcome aligns with your future goals, not just for tax.
25:44 – 25:47
And so what I mean by that is that we need to look at different scenarios.
25:47 – 25:56
And in this case, I had a client that making substantially a healthy sum of profits, right?
25:57 – 25:59
And it keeps going up every year.
25:59 – 26:03
And as most business owners, they say, the more I earn, the more I pay.
26:04 – 26:09
I personally think it’s a privilege to be able to do that because then you are, you know, having a successful business.
26:09 – 26:11
But in any case, how do we get that down?
26:11 – 26:14
So then before I said, well, here’s the strategy.
26:14 – 26:19
So the first question is going to be, well, what are your goals over the next 12 to 24 months?
26:20 – 26:23
Are you going to be buying any property? Are you looking to.
26:24 – 26:26
What are you going to do with that profit anyway? Right.
26:27 – 26:31
And so these are the questions that I would ask.
26:31 – 26:32
Are you going to have a family?
26:32 – 26:36
Are there all these different aspects that are changing within the next 12 to 24 months?
26:37 – 26:43
So if they come back and they give me an answer of, I just want to pull it out and buy a Lamborghini
26:43 – 26:49
and just live the life, then we try and minimise as effectively as possible.
26:49 – 26:57
But if they come out and say, well, I want to buy a house and I want to actually get into property
26:57 – 27:03
development or I want to buy another business, then sometimes will look at that.
27:03 – 27:06
Well, most of the time we’ll look at that and go, well, how do we actually structure this in the best way?
27:06 – 27:09
So, one, they can obtain loans.
27:09 – 27:13
Two, if they’re going to invest in property development, maybe it’s better that we put it into
27:13 – 27:19
a bucket company or some type of entity where we can actually contain or minimise the actual tax rate.
27:19 – 27:20
So it’s all about talking about goals.
27:20 – 27:26
Have you come across any clients that maybe are in that situation?
27:26 – 27:29
And I think most people think, let’s just take out all the money.
27:29 – 27:32
Yeah, it’s a very common question that we have with a lot of clients.
27:32 – 27:39
A lot of the time will see clients either increase their wage quite substantially or they’ll
27:39 – 27:40
take out massive Div 7A loans.
27:40 – 27:43
And the first question I’ll ask is, well, why are you doing that?
27:43 – 27:46
And the client response will be, oh, I just want money in my name.
27:47 – 27:49
And my question is, well, why?
27:49 – 27:52
So I can have a Good life.
27:52 – 27:57
Plus I also want to save for property, I want to buy a house, I want to buy some shares, I want to buy cryptocurrency.
27:57 – 27:59
A friend has a business, I want to invest in their business.
27:59 – 28:00
You know, those sort of things.
28:00 – 28:04
100%. 100%. So then the question is, well, why are you taking it out?
28:04 – 28:11
Paying up to 47% tax to then just park it in, potentially offset by a house or something like
28:11 – 28:13
that when you can look at a more tax effective structure.
28:13 – 28:17
So what we’ll generally look at is going, okay, well if we’re trading through either a trading
28:17 – 28:22
company or a trust, can we do distributions or dividends down to a holding company and then
28:22 – 28:26
look at actually doing the investments within that holding company where we’re capping the tax
28:26 – 28:30
rate at either 25 or 30% depending on, on the structure.
28:31 – 28:34
That way at least the cash is in that actual entity.
28:34 – 28:38
It can be protected if the person who was receiving the money is also the director.
28:38 – 28:40
So there’s that risk element that we need to be mindful of as well.
28:41 – 28:49
Plus then that way the again we’re saving on tax because worst case scenario is clients on quite
28:49 – 28:55
a high wage takes large sums of cash out, pays either that as a bonus or additional wage or
28:55 – 28:59
a dividend could be paying 47% tax to then put it on the offset to save 6 or 7% on their home.
28:59 – 29:00
Doesn’t make sense.
29:00 – 29:00
Doesn’t make sense.
29:01 – 29:08
Yeah. So it’s just, and you don’t really need to think about the strategy around it.
29:08 – 29:12
What you need to do is just talk to someone first.
29:12 – 29:16
I think that’s the first step for anyone, for a business owner that is making substantial profits
29:16 – 29:18
before you start ripping money out of the business.
29:18 – 29:26
Because once you rip it out and spend it, it’s a lot harder to manage it then coming in and
29:26 – 29:31
speaking to us and going, well, this is what I want to do, then we’ll tell you the best way to, to move it.
29:31 – 29:35
Yeah, so yeah, that’s I guess how we do it.
29:35 – 29:37
Now a couple of things.
29:37 – 29:39
ATO side, probably not the fun side, but it’s very, very important.
29:41 – 29:50
We have some new people that are in government over the last couple of years and they are, I
29:50 – 29:55
would say, a lot more aggressive in terms of the ato.
29:56 – 30:04
So these guys are really, really trying to recoup all of the money that they gave away over the last few years.
30:04 – 30:13
And what we’re seeing at the moment is that the ATO are really tightening up on their debt recovery.
30:14 – 30:19
And you probably have seen it Many times over the last couple of months.
30:19 – 30:25
But things like garnishees, DPNs.
30:25 – 30:28
So if you can explain to people, let’s start with garnishees.
30:28 – 30:29
Like, what are you seeing on that side?
30:30 – 30:32
I haven’t actually seen too many garnishes.
30:32 – 30:35
I feel right now the ATO is going straight for the throat.
30:35 – 30:36
Yeah, they’re actually issuing more.
30:36 – 30:38
So they’re just bypassing that.
30:38 – 30:40
Yeah, just going straight for the DPNs.
30:41 – 30:42
So I actually had a client receive.
30:42 – 30:44
A DPN today without any garnishee.
30:44 – 30:45
Without any garnishee, yeah.
30:45 – 30:49
So these are sort of things that, you know, in traditional terms that you’d usually see a step
30:49 – 30:54
by step process from the ATO going, well, a garnishee, what happens is they’ll send a letter
30:54 – 30:57
out saying, hey, we’re going to start taking money out of your.
30:57 – 31:02
Your business account and you can’t do nothing about it, basically.
31:02 – 31:12
So they will actually come in and dip their hands into your company or whatever it may be and take what they want. So that’s one side. Right.
31:12 – 31:13
They usually warn you for that.
31:14 – 31:16
Yeah, yeah, they usually give you a warning anyway. Right.
31:16 – 31:20
So as soon as you see these letters, as soon as you see any type of debt letter from an ato,
31:21 – 31:24
call the accountant straight away. Right.
31:24 – 31:30
But sometimes what Callum was saying is now they’re skipping the garnishee side and basically
31:30 – 31:34
going to what they call a dpn, which is a Director’s Penalty Notice.
31:35 – 31:42
This is probably one of the worst letters that you’ll come across.
31:43 – 31:44
And they do it in a couple of stages.
31:45 – 31:50
Generally what will happen is they’ll send the first one, which gives you a time limit, 1 days
31:50 – 31:52
to comply, 21 days to comply.
31:52 – 31:57
That means communicate with them, see if they can put a plan together.
31:57 – 31:59
If not, it’s usually you got to pay that debt.
32:01 – 32:08
And then after that, if you get the second one, it means now that anything that you owe to the
32:08 – 32:14
ATO within that company or trust or whatever the business is, even superannuation, payg, gst,
32:14 – 32:17
all those sort of aspects, they’re coming for you personally.
32:18 – 32:22
And so if that doesn’t scare you, I don’t know what will.
32:22 – 32:28
Because personally, for most people, means their cash in their bank, means their house.
32:29 – 32:36
If you’re not structured correctly, it basically means, you know, potential for you to go bankrupt.
32:38 – 32:40
And so, you know, this is.
32:40 – 32:48
This is happening more and more at the moment, and people that were just using their ATO debt
32:48 – 32:57
as a bank loan need to start thinking more strategically and reconsider this because you probably
32:57 – 32:57
see it all the time.
32:59 – 33:06
How many people or business owners use the ATO as a bank loan? You know, a lot. Yeah.
33:06 – 33:07
And how about payment arrangements?
33:07 – 33:08
What are you seeing there?
33:09 – 33:11
Again, just the ATO being more aggressive.
33:11 – 33:14
So previously, they were accepting up to two year terms.
33:15 – 33:17
Atos even taking three years at some stage.
33:17 – 33:21
Now they’re really asking for it to be one year depending on the circumstances.
33:21 – 33:23
They’re still, in some instances allowing for two.
33:24 – 33:27
They generally want a deposit up front that’s 5 or 10% now.
33:27 – 33:31
And just the information they want before they’re even willing to kind of look at it or accept
33:31 – 33:34
it is a lot more strenuous than what it was before.
33:34 – 33:39
So they’re, you know, wanting what they call capacity to pay information.
33:39 – 33:45
Then they’re also now introducing a business viability tool which is what you’ve got to complete,
33:45 – 33:49
pop in margin, so on and so forth with your products to actually see whether the business is viable.
33:49 – 33:51
And you have to submit that to the ato.
33:51 – 33:56
So they actually want to see whether your business is running profitably and is viable in their
33:56 – 33:59
own, I guess, terminology before they’re willing to even look at it.
33:59 – 34:06
So yeah, just like I said, they’re being more aggressive, they’re scrutinising a lot more because they want their money.
34:06 – 34:08
Yep, that’s exactly right. So how can you get in front of this?
34:10 – 34:16
In simple terms, it’s going to be again, going to be about planning and understanding that not
34:16 – 34:18
every dollar in your business is yours.
34:18 – 34:25
Unfortunately, that’s a country in our country and we should all be, I guess, happy that we
34:25 – 34:27
live in this country because it actually goes through great things.
34:27 – 34:32
We have great infrastructure, we have great everything your taxes go to, or some would argue wouldn’t.
34:32 – 34:35
But I think we live in a great country for healthcare and so forth.
34:35 – 34:37
But we have to pay taxes, Right?
34:37 – 34:39
And so how do we actually tackle this?
34:40 – 34:46
Because a lot of CL say, well, they take so much tax and now I can’t do what I want to do, I
34:46 – 34:48
can’t live what I want to live. Unfortunately.
34:48 – 34:53
It may sound harsh, but sometimes you need to look at, well, how is the business performing
34:53 – 34:57
in the first place, are you living above your means in terms of outside of the business?
34:57 – 35:04
And then how do you balance that so that you can actually pay your ATO debts and also live the
35:04 – 35:05
way you want to live?
35:05 – 35:10
But at the same time, if you can’t, how do you fix the business so it actually is more profitable?
35:10 – 35:15
And that comes to planning, that comes to ensuring that you have cash flow projections and budgets
35:15 – 35:20
and making sure that your margins are right, making sure that the business is actually growing
35:20 – 35:23
and you’re keeping track of those figures because this is where it all gets lost.
35:23 – 35:28
I think that most people will end up in this situation where they have ATO debts because they
35:28 – 35:35
didn’t manage, they haven’t managed their business figures well enough, unfortunately.
35:35 – 35:42
It does sound harsh, but if you plan effectively, yes, you may get into a bit of strife, but
35:42 – 35:45
at least you can control it at an earlier state.
35:46 – 35:52
So definitely have a look at your ATO debts if you have them, because what is coming up might
35:52 – 36:00
be a complete game changer, not for good for business owners, but essentially the government
36:00 – 36:09
are looking at passing a bill so that general interest charges are no longer deductible by businesses that have ATO debts.
36:10 – 36:17
And so what that means if you had, let’s say a half a million dollar ATO debt and you’ve racked
36:17 – 36:25
up 50k worth of general interest charges that is now non-deductible and 50k again for a company,
36:25 – 36:32
you’re looking at substantial amounts of money as additional tax that you have to pay.
36:33 – 36:34
So why are they doing that?
36:34 – 36:41
I think it’s so that you are approaching your banks and so forth and getting it off actual lenders
36:41 – 36:43
rather than using the ato.
36:43 – 36:47
So be very mindful about the ato.
36:47 – 36:53
Now I think that leads us to the last section which is probably going to be about, you know,
36:53 – 37:03
schemes and tax avoidance and everyone, everyone, you know, when times get hard, generally what
37:03 – 37:07
people will fall to first is well, how do I pay less tax? Right?
37:10 – 37:14
And I think that should be secondary to actually going, well, how do I actually improve my business
37:15 – 37:17
rather than how do I pay less tax.
37:17 – 37:23
But in saying that, we need to talk about schemes and tax avoidance because I think it’s a big
37:23 – 37:37
one that you’ll hear from friends, family, social media that there are these magical ways that just make tax disappear.
37:37 – 37:40
And I don’t know, have you, have you had any examples and clients come up to you and say, well,
37:40 – 37:42
can I go, I don’t know, can I go to Dubai or.
37:42 – 37:44
Yeah, that was what I was just about to suggest.
37:45 – 37:50
The most common example I get is, you know, I’m a digital nomad, I have an E commerce business,
37:50 – 37:58
can I go Travel Dubai for six months because they’ve heard of the 183 day test and then, you
37:58 – 38:03
know, come back to Australia and you know, pay no tax because I’m a Dubai tax resident.
38:04 – 38:10
So like you said before with the ATO tightening up and a few other things.
38:10 – 38:14
Clients are trying to look at how their, you know, business can work more for them and how they can minimise and tax.
38:14 – 38:20
And there are a few schemes and tax avoids, avoidance, I guess, kind of strategies being thrown out there.
38:20 – 38:26
But the, it’s not something that I would obviously recommend and something that people that
38:27 – 38:31
are thinking about doing those things need to be really mindful of the increased capabilities
38:31 – 38:33
that the ATU have right now.
38:35 – 38:40
They can look at your bank accounts, they obviously speak to all the other government agencies
38:40 – 38:42
so they can see if you’re travelling, you’re not travelling.
38:43 – 38:47
So you have to be really mindful with what you’re doing and what you’re trying to get away with.
38:47 – 38:50
Because the ATO has more power than what they’ve ever had.
38:50 – 38:52
And it’s really not something that I would want to gamble with.
38:52 – 39:00
Exactly right. And so my advice here is if you’re spending time looking for schemes or strategies
39:00 – 39:09
and paying all this money, I would more so try and invest that time and money into ways to actually
39:09 – 39:12
build and improve your business in the first place.
39:13 – 39:18
Because if you’re making so much money that tax doesn’t matter anyway, then, then you won’t be in this position. Right.
39:18 – 39:20
So so many people like, well, how do I avoid tax?
39:20 – 39:23
How do I get, should I go to Dubai and do this?
39:23 – 39:24
But it’s like, well, stop doing that.
39:24 – 39:29
And first and foremost, stick to the basics first, which is get a great structure in place, do
39:29 – 39:36
your pre, pre-end of financial year tax planning and then regularly have a look at your financial
39:36 – 39:38
statements on how to save tax that way. Right?
39:38 – 39:44
That’s the first time you’ll save a heap, probably most of the amount of tax legally just by doing that.
39:44 – 39:47
Then spend the most, the rest of your money actually trying to improve your business.
39:48 – 39:51
Because I’m not going to say it’s a waste of time.
39:51 – 39:57
I’m going to say it’s a very, very risky way of apportioning your time because you will get
39:57 – 40:09
sold by someone to do something that’s not particularly black and white and you will probably be.
40:09 – 40:11
The one that actually pays the price.
40:11 – 40:17
Pays the price, right? Because I’m seeing these coming from the us I’m seeing, coming from Dubai
40:17 – 40:20
where they’re saying, hey, let’s, we’ll set up a company for you.
40:20 – 40:23
We’ve done it before, we do all the setup.
40:23 – 40:25
Who’s going to get in trouble for this?
40:25 – 40:28
I don’t think the ATO are going to go to Dubai and find Mr.
40:28 – 40:32
Sheikh and, and, and say hey, you set it up for him, you’re in trouble.
40:32 – 40:37
It’s just, it’s not possible they’re going to be going after taxpayer.
40:37 – 40:38
They’re going after the taxpayer.
40:39 – 40:46
So, you know, if your sole purpose in life is not to pay any tax, then I would just suggest focusing on your business.
40:47 – 40:51
Make the money work for you so that tax isn’t a problem.
40:52 – 40:56
And of course, that doesn’t mean that we love the tax man and that we want you to pay hipsa tax.
40:56 – 40:58
It means we’ll still try and minimise it.
40:58 – 41:00
But protect yourself first, minimise second.
41:01 – 41:05
Anything else you wanted to touch base on before we end the show? California?
41:06 – 41:08
No, I think that’s about it, mate. Covers the main points.
41:08 – 41:15
Cool. So if you haven’t, as of yet, sought any advice about your profits for this financial
41:15 – 41:21
year, you’re making changes in your business and the lifestyle changes or family changes, asset
41:21 – 41:22
changes, give us a call.
41:22 – 41:23
More than happy to help.
41:24 – 41:29
We can help clients all across Australia jump on our website and book in a call. Thanks, guys.
41:30 – 41:30
Thank you.
