Another financial year done and what a year it’s been!

If you’re a business owner, ideally by 30 JUNE you should have a fair idea of what your tax liability for the 2021 year will be and have all the appropriate documentation executed.

Over the last number of weeks, we have been posting daily tax tips here outlining just some of the ways you can legally organise your business affairs and minimise your tax position for 2021.

This is what great accountants do with their clients to ensure they are just paying the “right amount” of tax so more of your hard earned money stays in your pocket and you know what you’re estimated tax is well in advance of the due date.

Recently we have been discussing family trusts and the ability to potentially split income across the family and reduce your overall tax bill.

I have since been getting a lot of enquiries asking what could be done if the trustee has split the income as much as possible within the family, but every family member is now on the top rate of tax (because of their income levels).

The answer might be having a company as another beneficiary of your trust.

There are several structures to choose from when it comes to running a business but there is no “one size fits all” approach and needs to be based on your specific circumstances..

One option is what are commonly known as “family trusts”.

An advantage of a family trust, is that the trustee has discretion each year with regard to who gets the income and gains from the trust. From a tax perspective, this could split the tax burden very efficiently across the family.

Some dividends that are paid to shareholders have a refundable tax credit known as a franking credit.

This simply means that the company has paid tax on company profits and the tax credit attaches to the dividend when paid to the shareholder.

Having a property depreciation schedule performed on your rental property by a qualified quantity surveyor, who produces a depreciation schedule for your Accountant, can literally save you thousands of dollars in tax each year.

It’s money for nothing and many property investors either forget about it or simply have their local accountant knock together a “best guess” schedule that rarely maximises your deductions.

If you have a trust as part of your business group, it’s absolutely paramount that the trustee resolution for the trust is prepared and signed ON OR BEFORE 30 JUNE 2021.

This sets out how the trustee (usually the business owner) will allocate the current year income to the beneficiaries of the trust.

In other words, it sets out who gets the income and this will impact what tax they will ultimately pay.

If your partner earns taxable income of less than $39,837 (up to maximum threshold of $54,837) and you put an after-tax contribution of $1,000 into super, the government will kick in $500. It’s a no brainer if you’ve got the cash.

Nobody wants to make a loss but if it’s inevitable, you should know how to utilise it to reduce your tax bill. Capital losses can be offset against capital gains reducing your taxable income but you need to get the timing right.

If you sell an investment and make a capital loss, this loss can only be offset against current year capital gains or carried forward against future year capital gains. The key thing to understand is that you cannot carry back a capital loss to a previous tax year.

In a previous blog we spoke about the timing of expenses and the Robin Hood effect.

Another option to bring down your taxable income in the current year is to pay staff their super a little earlier. This is ideal if your taxable income is high this year but may be lower next year.

The more you make, the more they take!

If you are earning $35,000 a year, you are currently paying 19% tax on every dollar made until you hit a certain income level. If you are earning $180,000, you will be paying 47% tax on every dollar made above this.

So, what can we do with this in mind?