Hey Ya'll
I'm looking to learn if you are willing to share your knowledge.
I would like to understand why people say they are running a business for a tax write off
eg a cafe or take away shop.
I don't understand the scenario around this.
How would such a business be a tax write off?
Use the business to minimise the total amount of tax they pay. Usually for high earners
A loss making entity can reduce your taxable income - therefore you pay less tax.
A cafe or takeaway is quite easy to run on cash to hide some of the takings. While it might actually be profitable or close to it, could look like a loss on the record.
I paid cash for my lunch today. I have no idea whether the cash was recorded in the register or not, I just got the right amount of change.
That really isn't how GST works
=/
And what about paying no tax because you’re covering/offsetting previous years losses (probably sound like a noob, but didn’t qantas pay no tax despite huge profits because of losses or something from previous years?) might only be a perk for big business tho
You are not wrong about that. Some big businesses buy loss making businesses purely because the loss making business has accrued a huge amount of tax credit.
same.. if you had an investment property and you sold it at a loss, you have 7 years to offset your previous loss against any capital gain
Yes, negative gearing. Having a steady job means that you cannot do much with the amount of tax you pay. Having a business means that you can now claim certain expenses that you could not normally claim with just a steady job. Car/fuel expenses, mobile phones and plans, laptops. Having so much "expenses" means that your "business" is probably making a loss, which you can then offset against your steady job income.
people love spending a dollar to get 37c back
Plus franking credits - don't dare take that away from people, particularly pensioners with million dollar plus share portfolio
Why shouldn’t they get franking credits on the corporate tax they paid?
You can get the franking credits but if you are not paying tax why should you be entitled to a refund.
The whole tax systen needs an overhaul. Lower taxes for everyone and stop the BS like negative gearing, franking credits etc
@chumlee: I’m not sure you understand franking credits. You seem to be parroting back politician’s comments without understanding the underlying system. Don’t do that. Adopt some critical thinking of your own.
@kipps:
You can claim franking credits against other tax paid. The only proposed change is to remove the refund.
Sell some franked shares, buy some with unfranked and you can offset your franking credits again.
@kipps: i understand it very well. Maybe you need to read up on it. You sound like a liberal party stooge
@chumlee: i agree NG is a rort, should only be allowed to carry those loses forward against future PG years
I don't know if this particular example has been brought up on OzBargain before, but here it is:
Bikies.
Imagine a guy in his 20s, raised in poverty, has barely worked a day in his life yet has a paid-off property portfolio worth over $3 million. And then read about the guilty-before-proven-innocent Confiscation of Proceeds of Crime Act 1989 and its surprisingly paltry recovery rate. And then you'll realise why a cashless society couldn't come sooner for the government.
Similarly, people often say the pointless, empty shops that frequently open in the city are just there to acquire residency (e.g. via the Significant Investor Visa and now Premium Investor Visa) but I don't know enough about the scheme to make judgment (could probably just buy bonds?).
Many people have cash income they need to launder.
A business has tax advantages such as being able to direct income, e.g. if the owner is otherwise a high income earner, they can own a loss making business that 'employs' their spouse or child who pays little tax. The business could 'lose' quite a bit and still be worthwhile.
Things like vehicles, phones, computers can all be business expenses.
Travel can be a business expense.
Other loss making businesses include places where the new immigrant investor gets a visa for their business investment, that they can sell to the next in the queue in a few years.
Basically, you need to have substantial taxable income streams before this kind of adventurous tax planning is worth looking into.
They closed the child income loophole many moons (PM's) ago
Not if your child is a 19yro uni student (and the loophole you mention regarding minors is for unearned income)
Also, a very, very common reason to say this, is the person made a mistake and is actually losing on the investment, but their ego is such that they are hoping to reverse the situation - but for now it is a 'tax write off'.
A business pays 30% tax on its profit i.e. income minus expenses (last I checked). If a business makes a loss, they can carry this loss forward and offset against future profits. i.e. if they loose $20 a year for 5 years they have $100 in tax losses to roll forward and offset against any profits in the future. While this sounds great, Its not actually smart to do, because the simple thing is, you are loosing money and this is not good to do intentially. If you are making money and you use this method to "minimise" tax that is ok, but actually loosing overall I dont see a benefit. The only way it can benefit is if that individual who is the director, uses the business for all his personal needs somehow, i.e. car, house, holidays, clothes, kids schooling etc. and then whatever is left in his profits instead of wanting to contribute 30% of that to the economy he would prefer to make an investment or business loss somewhere to net this off to $0, or pays himself an income which adds to his business expense but makes sure his income tax threshold remains low.
Or he is a drug dealer, where he is turning his drug money to clean money via fake sales. In essence his measure of profit would be different.
negative gearing … ohh waitt..