5 Smart Strategies for Tax Minimisation
There are many tax minimisation strategies and concessions available for businesses in Australia. By taking the time to implement them you can keep hard earned profits in your account and maintain a healthy financial position.
In this blog, we’ll explore five key tax minimisation options that can help Australian businesses reduce their tax burden.
1. Assess Business Structure
It’s worth re-assessing your business structure as you grow. You may not be operating under the most tax efficient business structure. For example, if you started out as a sole trader but are now generating significantly higher profits, you may end up paying more tax as an individual taxpayer, rather than forming a company, paying the company tax rate and taking home dividends.
There are also valid scenarios where forming a trust may be a better option for tax minimisation than a company. In each situation, it comes down to your individual circumstances so it’s important that you speak with a professional tax planning specialist.
2. Utilise Fringe Benefits Tax (FBT) Exemptions
FBT is a tax imposed by the Australian government on certain non-cash benefits provided by employers to their employees. The tax is intended to ensure that employees are not receiving additional benefits in lieu of salary or wages, which would otherwise reduce the amount of income tax paid.
Fringe benefits can take various forms, including:
Company cars provided for personal use by employees
Payment of private expenses, such as school fees or private health insurance
Provision of entertainment, such as tickets to sporting events or concerts
Housing or accommodation provided to employees
FBT tax rate is 47% so it’s important to familiarise yourself with the FBT regulations and take advantage of exemptions and concessions where applicable. If you provide certain benefits like work-related electronic devices, exempt vehicles, or minor benefits you may be able to claim these and reduce your FBT liability.
3. Are You A Small Business?
Small businesses in Australia, with an annual turnover of less than $50 million, may qualify for several additional income tax concessions. These include a lower corporate tax rate of 25%, immediate deductions for start-up expenses and prepayments, simplified trading stock rules, PAYG instalment concessions, and a two-year amendment period. Understanding and utilising these concessions can help with tax minimisation for eligible businesses.
4. Use Small Business Depreciation Rules
Small businesses in Australia can benefit from special depreciation rules that allow for accelerated deductions on certain assets. Under these rules, businesses can claim an immediate deduction for assets costing less than the threshold (currently set at $150,000).
5. Small Business Capital Gains Tax (CGT) Concessions
CGT Concessions are a set of tax provisions in Australia that provide certain tax relief and concessions to small businesses when they sell or dispose of eligible assets. These concessions offer tax minimisation, allowing business owners to retain more of the proceeds from the sale of their assets.
A few key points to note about CGT:
- To qualify for it, your business must satisfy the ATO’s definition of a “small business entity.”
- The asset being sold or disposed of must meet the “active asset” test. An asset is considered active if it is used or held for use in the course of carrying on a business, over a specific time period. The length of time depends on the legal structure of your business.
- If the asset has been owned for at least 15 years and the business owner is over 55 years old and retiring, they may be completely exempt from CGT.
- If the asset does not meet the criteria for a complete exemption, you may still be entitled to a 50% CGT discount on the capital gain made.
- Small businesses can defer CGT on the sale of an asset by utilising the rollover relief provisions. This allows the capital gain to be deferred if the proceeds from the sale are used to acquire replacement assets or to improve existing assets.
Small Business CGT Concessions can be complex and the application may vary based on individual circumstances. It’s advisable to consult with a qualified tax accountant first.
Tax Minimisation Experts
By implementing tax minimisation strategies and taking advantage of available concessions, you can reduce your tax burden and allocate more resources towards growth and development.
At Allevi8HQ our team will get to know your individual circumstances and develop a custom tax minimisation plan for you. Contact us today to book a free consultation.
FAQs
What is an effective strategy to reduce taxable income?
Each business is unique and would require a tailored tax minimisation strategy. But here are a few common ways for tax reduction Australia:
- Claim all eligible business expenses
- Accelerate deductions
- Utilise depreciation and asset write-offs
- Contribute to your and your employees’ super
- Explore small business concessions
- Review your business structure
- Stay updated on tax legislation
What business structure has the lowest tax rate in Australia?
When considering a tax minimisation strategy, business structure plays a huge role.
The amount of tax a business pays in Australia depends on various factors, including its structure, income, expenses, and applicable tax laws.
Technically, a sole trader has the lowest tax rate because your business income is considered personal income, and is taxed at the individual income tax rates, ranging from 0% to 45%. But only if you don’t make much profit and fall into a lower tax bracket.
What is the tax avoidance scheme in Australia?
Tax avoidance schemes refer to practices that are designed to minimise or eliminate tax liabilities through artificial or questionable means. These schemes often exploit loopholes in tax laws or engage in aggressive tax planning strategies to achieve tax benefits that may not align with the original intent of the tax legislation.
In Australia, the government and tax authorities are vigilant in combating tax avoidance. They have implemented various measures and legislation to prevent and penalise such schemes.
Working with a reputable tax accountant is key to ensure that all your claims and tax minimisation strategies are 100% legal and follow good accounting practices.
Is tax avoidance illegal in Australia?
Yes. The Australian government and tax authorities have measures in place to prevent and detect tax avoidance practices. They continuously monitor compliance with tax laws and regulations, and if they identify aggressive tax planning or arrangements that are considered tax avoidance, they may challenge them through audits, investigations, and legal action.
