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How to minimise your tax


The first 10 months have passed for the financial year. If you are like most of my clients; you paid no tax last year, thanks to a lot of the government Covid kickbacks. Tax-Free cash flow boost was a real winner for all businesses and writing off your motor vehicles purchases 100% really increased your tax deductions.

In 2021FY most of the JobKeeper benefits were received. Many businesses had a 2-4 week blip in March & April 2020. However afterwards a lot returned to normal trading and some even increased business, i.e. trades, lots of home renovations last year. Some are having their business profit in years or ever.

Now is the time for tax planning for 2021. Review to see what potential tax deductions you can bring forward, purchase some assets you will need and look into extra super to name a few. Plan now, the tax savings are worth the investment. Everyone loves to minimise their tax! Why not you?

Do you really need a Trust to trade


Setting up a trust is the most expensive structure. There are two parts, the "Trustee" and the Trust itself. Generally, the Trustee is a company (it can be an individual), so this means setting up a company as well. There are many types of trusts, however, for this post I will be referring to a Discretionary Trust.

It does give great asset protection and potential to save tax.
The Trustee company has directors and shareholders.


The profits from the trust have to be paid out to the beneficiaries of the trust.

The beneficiaries will have to include this in their tax returns. Beneficiaries can be individuals or non-individuals.

However, trading your business through a discretionary trust is not ideal. When running your business, you have to reinvest back into the business to ensure it operates profitability in the future. Having to pay cash out to the beneficiaries can be a detriment to the business success.

There are many uses for trust, I don't believe running your business through a discretionary trust the best option. Make it the shareholder of your company...

Why use a company structure?

A company can cost a little more to set up than a sole trader or partnership structure. However, the benefits gained long term more than compensate for the inital investment.

You gain by having personal protection against your personal assets, you can save income tax and the business can be easily transferred and still appear to operate the same without you.

A company has directors, who are the managers or controllers. They also have shareholders who are the owners of the business. Directors are individual people, whilst shareholders can be non-individuals. For small businesses, they are usually the same or a related party.

Before creating the company up you will need to check with ASIC to confirm the company name is available. The company will have it's own TFN and ABN, register for GST and for PAYG withholding to pay wages (as you will be an employee in the business).

You'll open a new company bank account. When you take money out of the company bank account for personal expenditure, there will be tax consequences.

It;s best to have a plan!

There are many more features to having a company, feel free to reach out if you have questions

 



Starting a business with a friend..

Starting a business with a friend..

Are you sick of working for the boss and think you and a friend can do it better?




Living the dream (or nightmare)?

You have finally taken the leap and you are going to be self-employed. The most basic business structure you can trade as is a Sole Trader. Being a Sole Trader, you are the business. All you really need to get started is:
 

To apply for an ABN
Registering for GST is only compulsory if your income (not profit) is above $75k annually
If you would like to have a Business Name, you will need to register this business name with the ASIC.

One of the biggest challenges for new Sole Trader is putting money aside to pay their tax. As a rule of thumb, I advise most clients to put aside 30% of what they earn for tax, i.e. savings. You can use these extra savings for super contributions, as you no longer have an employer paying these for you.

Sole Traders no longer are covered by workers compensation insurance, I would recommend getting some sort of sickness and accident insurance which is similar.

These are some challenges before you start dealing with customers...

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John Reilly
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Accountant CA
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Accountant CPA
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