Business Tax Structuring
The tax structuring for a family’s business and investment portfolio needs careful consideration. In effect, the tax structuring of a family should consider the income tax considerations, capital gains tax impacts, estate + succession planning positions, asset protection opportunities and also the cost of administration.
At Westcourt, we understand that these five competing interests need to be considered together when undertaking the tax structuring of a business or investment portfolio. So our detailed, documented tax structuring advice for each entity created, changed or closed will go over the most relevant issues for the family so that the best tax structure is chosen for a family looking at their current and future needs.
Further, our engaged tax compliance team always considers the possible need to change the tax structure for a family each year with the advent of new tax legislation as it applies to the family, their business, and the family’s investment assets. This approach, which is documented and presented with the tax returns, will ensure that the tax structure will change and evolve with current and changing tax law. It also allows for a family to scale up (and scale down) the tax structuring for the family’s needs as the business and investments wax and wane.
At the Westcourt tax structuring advice team, we are also focused on keeping tax structures as flexible as possible to reduce costs. We often find new clients come to our position with an overly complex, costly tax structure that achieves little but has high administration costs to the former accountants and lawyers. We deliberately attempt to keep systems simple and easy to manage until there is a clear and distinct benefit to a family to change into another more costly structure.
Our patient approach to tax structuring strategy is also backed up by law. One example is where we consider the ability to access capital gains tax concessions with tax structuring – including the small business CGT concessions and the small business restructure options. These options allow many small businesses to commence “simple” and scale up to a complex decision.
The creation of a tax structure also has more options than are readily available. The “off the shelf” tax structures (like a company, discretionary trust or SMSF) can be produced quickly and are suited for many types of ventures. However, other situations like succession planning, special share classes, unit trusts, hybrid trusts and SMSF combinations can create unique tax structuring opportunities that are not immediately obvious. And this is where the Westcourt tax structuring advice can significantly value.
And we understand that tax structuring is done for many reasons other than tax. So, our focused approach on advice for family businesses requires that we engage with insurance brokers, investment advisors, banks and lawyers about the business. This allows us to consider wider issues like employment, liability or transfer duty implications of changing tax structures now or delaying a complex system until later on. This “eyes wide open” approach will allow families in business starting to choose a tax structure that suits them from the start – from a company that will most likely be focused on lifestyle to a start-up with global plans for expansion.
At Westcourt, we are ideally placed for tax structuring advice for families and the family business and family investment portfolio they own. Our single focus, deep and proven technical tax expertise, strong global network through GGI Global and collaborative approach mean that we will create and maintain an ideal tax structure best suited to the family – so why not give us a call.
Frequently Asked Questions
Tax structuring refers to the process of organizing your financial affairs in a way that minimizes your tax liability and maximizes your after-tax income. Tax structuring involves considering various tax laws and regulations, as well as your own financial situation, to determine the most tax-effective way to structure your income, expenses, assets, and liabilities.
For example, tax structuring may involve:
- Choosing the right legal structure for your business, such as a sole trader, partnership, company, or trust, based on the tax implications of each structure.
- Deferring income to a later financial year when you expect to be in a lower tax bracket.
- Maximizing deductions by claiming expenses that are directly related to earning your income, such as home office expenses, vehicle expenses, and work-related education expenses.
- Using tax-effective investment strategies to reduce your overall tax rates, such as salary sacrificing into superannuation or investing in tax-advantaged investments like managed funds or exchange-traded funds (ETFs).
- Considering the tax implications of purchasing or selling assets, such as property, shares, or business assets, and taking steps to minimize the tax impact of these transactions.
Tax structuring is a complex area, and it’s important to understand the tax laws and regulations that apply to your situation. If you’re unsure about the best way to structure your finances for tax purposes, you may want to consider seeking the help of a tax professional, such as a tax agent or a lawyer who practices in taxation advice.
The most tax-effective structure for your Australian business will depend on a number of factors, including the size and type of your business, your personal circumstances, and your future plans for the business. Some of the most common business structures in Australia include:
- Sole trader: If you are the only owner of your business, you can operate as a sole trader. This structure is the simplest and easiest to set up, and you will pay tax on your business income as part of your personal tax return.
- Partnership: If you are in business with one or more partners, you can set up a partnership. Each partner will pay tax on their share of the partnership income as part of their personal tax return.
- Company: If you want to limit your personal liability for the business, you can set up a company. A company is a separate legal entity from its owners, and it pays tax on its income at the company tax rate.
- Trust: If you want to manage the distribution of your business income to different beneficiaries, you can set up a trust. A trust is a legal arrangement where the income from the business is held by a trustee for the benefit of the beneficiaries.
Each of these structures has its own advantages and disadvantages in terms of tax, liability, and compliance, and it’s important to consider your own circumstances and goals before choosing the right structure for your business. Plus you also have the option of using combinations and hybrids of the above entities together with self managed superannuation funds for some instances.
If you’re unsure about the best structure for your business, you may want to consider seeking the help of a tax professional, such as a tax agent like Westcourt.
The tax rate that Australian small businesses pay depends on the type of business structure they have chosen, as well as their taxable income.
For companies, the corporate tax rate is currently 25.0% for businesses with an annual turnover of less than AUD 50 million. For businesses with an annual turnover of AUD 50 million or more, the corporate tax rate is 30%.
For sole traders and partnerships, the tax rate is based on the individual tax rates, which vary depending on the amount of taxable income received. The current individual tax rates in Australia are:
- 19% for taxable income up to AUD 18,200
- 32.5% for taxable income between AUD 18,201 and AUD 37,000
- 37% for taxable income between AUD 37,001 and AUD 90,000
- 45% for taxable income over AUD 90,000
It’s worth noting that small businesses may also be eligible for various tax concessions, such as the small business income tax offset, which can reduce the amount of tax they pay. Additionally, small businesses may be able to claim deductions for a range of expenses, such as operating expenses, capital expenses, and depreciation, which can also reduce their taxable income and lower their tax bill.
It’s important to understand that tax laws and regulations can change over time, so it’s a good idea to keep up-to-date with the latest information and seek advice from a tax professional if you need help with your tax obligations.
