We have more than 100 tax planning strategies and 201 occupations for tailored occupation deductions report. It's simple - All taxpayers can benefit from tax planning and the savings that are created. Approximately 50% of Australian taxpayers use legal tax planning strategies to minimise their tax with the most popular strategies being negative gearing of residential properties (2.1 million taxpayers), and salary sacrificing super contributions (4 million taxpayers).
CASE SCENARIOS:
Small Business Saves $8,108 Tax
Objectives:
Peter is a small business owner who wants to save tax and reduce his child maintenance payments.
Facts:
Peter’s business has a taxable income of $77,000 and is growing (taxable income is expected to double next year). Peter is divorced and pays child support of $12,000 per year.
Accountant’s Advice:
Tax Strategy 1: Home office occupancy costs – business operated from home (seeing clients, administration, etc.).
Tax Strategy 2: Rollover from sole trader to company – Move to company structure for asset protection purposes and to take advantage of the 27.5% company tax rate (25% from 2022).
Tax Strategy 3: General pool balance less than $30,000 – Write-off the $30,000 general pool balance.
Tax Strategy 4: Gift to clients.
Results:
Peter saves $8,108 tax (taxable income reduced by $23,501).
Child support payments are reduced by $6,000 pa.
Cleaning Company Saves $123,500 in Tax
Objectives:
Sam, operates a cleaning company servicing several shopping center clients. As the cleaning industry has very low margins, Sam is looking to reduce his cost of doing business to remain competitive.
Facts:
$2 million revenue. Employs 25 individual subcontractors at an annual cost of $1.3 million.
Accountant’s Advice:
Tax Strategy: Reducing Super Guarantee Payments – This involves changing all the individual subcontractors to contractors operating through an entity (a partnership, company or trust). In addition, each contractor should be operating as an independent contractor under a written, signed, independent contractor agreement (which has been prepared by a solicitor).
Results:
This eliminates the 9.5% super guarantee liability on $1.3 million subcontractor payments, saving $123,500 pa.
Husband & Wife Doctors Save $42,534 in Tax
Objectives:
The two doctors are self-employed and operate through their practice company. When they visited their accountant, they said they would like to payout their $500,000 private mortgage as quickly as possible, and restructure their affairs to save some tax as well.
Facts:
Family taxable income $880,000. SMSF with $800,000 cash at bank. They own $8m worth of property with $4m debt (family home plus 4 rental properties). Current tax paid – $277,500.
Accountant’s Advice:
Tax Strategy 1: Salary Packaging Private Motor Vehicles – This involves transferring the 3 family motor vehicles into the practice company.
Tax Strategy 2: Transfer Personal Investments into Super – This involves selling the $500,000 of ASX shares that are personally owned by the doctors to the family SMSF. This results in the $30,000 annual dividend income being taxed at 15% in the SMSF, versus 49% in their personal names. This strategy also results in $500,000 of cash being withdrawn from the SMSF and used to repay their private home mortgage. This saves $20,000 in non-deductible interest expense pa.
Tax Strategy 3: Instant Asset Write-Off – Transferring the 3 motor vehicles to the practice company creates a $50,000 tax deduction.
Results:
Pays out their private home mortgage.
Reduces family tax expense from $277,500 to $234,966 per year (saving $42,534).
Provides for their retirement.
More case study continues....
