Business & Tax Advice * Serious Questions *

nubneedshelp on 24/03/2018 - 15:38
Last edited 24/03/2018 - 15:42

Short back story

  • I have been in business with my partner (no kids) for around 18 months, as a duo, with no other employees the business earns between 400k - 600k a year pre tax.
  • Business / our life expenses = 70k.
  • Probably can't scale the business at this stage unless it makes sense for tax purpose.
  • We don't own property, we don't rent, we don't have an office.
  • I am relatively frugal but live comfortably, have great lives, work very hard in a very rewarding job, we are saving allot of money at this stage whilst considering other ventures.
  • I don't need to change anything about our lives in the near future besides buying property or expanding new businesses.
  • I don't necessarily need to live in Australia, we could operate globally but would really prefer to stay in Australia as it may mean a 20% income loss consequently if I moved.

Questions

I would love to hear what advice or opinions the community can give us on the following questions:

1. The business makes a good profit, how do we effectively use this money to minimise TAX?

2. We are considering buying property between now and the next year or 2 but don't really like the idea of any kind of mortgage would this be sensible approach?

3. We have considered moving to a country that benefits us from a Tax perspective but this really complicates things, anyone have any experience in this that can share their knowledge?

4. Who should I got to have help with this our accountant provided us no real help outside of the simple words of buying property?

5. If the business continued to earn 500k-1m a year what should we do now to build wealth and effectively use our money?

Lastly, I don't think I'm selfish to minimise my tax, every big business has it's ways to do this which is both suprising and alarming. As an employee on a salary I felt like it was quite straight forward BUT owning and running a business with all the hours, risks and stress that goes into it I don't feel as obligated or driven to pay such a large amount of earnings to the government.

Financial

Comments

  • Donaldhump on 24/03/2018 - 15:47
    +9

    If your business earns 400k go to an accountant and spend 1000 dollars or what ever it costs, on advice from a pro, not random bush accountants ( including myself so no offence intended to the readers of this) on ozbargain.

    • nubneedshelp on 24/03/2018 - 16:28

      Accounts are great, they take your money and give their opinion. But, I would love to hear what people do who are in similar positions with small businesses to see what the options are. What do you do with your business earnings?

      • kipps on 24/03/2018 - 16:36

        Don’t avoid professional advice. Too many people have disputes because they didn’t take proper advice. That dispute will cost FAR more to litigate and could have been avoided all along. Get a good lawyer and accountant and get their advice. Consider it an investment.

        • nubneedshelp on 24/03/2018 - 16:54

          Thats what I want, but we went to an accountant who basically didn't offer anything despite showing and explain our projected earnings ect, $1000 was paid with no return besides processing tax returns. I am looking to see what members can say such as business owners, or investors. I do understand I can keep paying accountants till we get solid advice but we are trying to avoid that costly and time consuming exercise.

        • AusGP on 25/03/2018 - 00:22
          +1

          @nubneedshelp:

          From my experience it helps to know some basics and keep asking your accountant questions. When they know you have a more sophisticated understanding of business and accounting matters they give you better advice. Same with bankers, insurance brokers etc.

          I once read a quick book (just look at some at a bookshop on business / taxation) that gave me the basics.

          However I would always still get professional advice. You may want to look at a trust, if anything for asset protection .

      • retiredfeline on 24/03/2018 - 16:42

        they take your money and give their opinion

        If you like we can also take your money and give our 2¢ opinion. ;)

        • nubneedshelp on 24/03/2018 - 16:59

          :P it's interesting how there are good Dr's and bad Dr's, good mechanics and bad mechanics…and good accountants and bad accountants. Though the community here seems to be full of frugal / savy people who may be able to steer me into a good direction.

    • MrBear on 25/03/2018 - 15:01

      But you are giving him advice to not take advice from you…

  • foxmulder on 24/03/2018 - 15:50

    One thing I know is to pay yourselves some salaries as that will reduce your company txavle income and on personal level you only get tax again on the difference between your personal income tax bracket and company tax rate.

    • th123 on 24/03/2018 - 15:58
      -3

      Just a random thought that crossed my mind, Can they just set themselves on part-time earning 18.2k/yr to be in the tax-free threshold?And effectively have a "fake" 27 employees at this number?

      • doweyy on 24/03/2018 - 16:03

        Sure, if they want to get done for fraud. It doesn't have to be $18,200, they can tax deduct all employee salaries and wages, as long as they're legit.

        In your case, the "fake" employee's wouldn't pay income tax, but they don't have TFN's because they're fake lol.

      • xuqi on 24/03/2018 - 16:05

        Sure, if like dressing in stripes and sharing a room with 'bubba'.

      • th123 on 25/03/2018 - 01:13

        Amazing, I can't express thoughts without being down voted. What an open community

        • monkeybusiness on 25/03/2018 - 10:45
          +1

          Fraud is never good advice

          PS. I didn't down vote you but I can see why others might.

  • afoveht on 24/03/2018 - 16:02
    +1

    I don't feel as obligated or driven to pay such a large amount of earnings to the government.

    Donate to good quality charities instead of the government.

    • nubneedshelp on 24/03/2018 - 17:01

      Possibly, I should set up a charity :P

  • smuggler on 24/03/2018 - 17:00

    blah blah blah…

    Go pay a financial planner you cheapskate.

    • nubneedshelp on 24/03/2018 - 17:02

      Just looking for opinions and advice.

      What does your financial planner advise you ?

      • smuggler on 24/03/2018 - 17:06
        +1

        What does your financial planner advise you ?

        To sit tight until I have enough to blow all my money on a house in the suburb I want to live in while still maintaining a comfortable life. I don't have a wife, kids or plans to create enormous amounts of wealth. It's the lonely life for me with a house near the beach, a gf (who may or not live with me) and a 45 hour a week engineering job with travel 4 times a year. I could've told myself that. The financial planner was just advising me about what not to do since I don't live a frugal lifestyle. lol

  • pulpfiction on 24/03/2018 - 17:21
    +1
    1. Remember earns vs profit are two different things. There's heaps you can do, but my least worst short version is something like this: fundamentally it's about reinvestment since your company is only taxed at 27.5%. Make sure you expense everything used for business purposes, donate to charity (we joined a movement called pledge1percent.org, but donate 10% of profits) and have a structure that buys you long term flexibility (eg I use a discretionary trust). Oh, and GST is your friend - it's basically a 10% discount on all things business related if buying in Aus.
    2. No problem paying cash if there's 0 chance of you wanting to rent it out one day. If that's a possibility, then get a mortgage with an offset and keep the balance in the offset. This allows you to tax deduct expenses later.
    3. If there's a country you want to move to then go for it. Moving for tax purposes is just daft.
    4. A better accountant and possibly a business coach. There are consultants who do this too, but their value is questionable.
    5. Again, heaps you can do. Depends on state, but you'll want to consider higher dividends and lower salaries to avoid unnecessary payroll taxes. This may be relevant to you today depending on state.
  • monkeybusiness on 24/03/2018 - 17:22

    Some serious questions here:

    • When you say business earn 400-600k? Is that revenue? Or actual profit?

    • What sort of business are you in? Especially one where you can work remotely from overseas?

    • Why haven't you asked your accountant? If your accountant can't provide useful feedback, it may be worth changing accountants. Professional services is all based on trust and a good working relationship. This is why people pay good money (and not just the cheapest available) to have good people they can trust.

    Too many questions marks before anything can provide anything useful

    • nubneedshelp on 24/03/2018 - 18:47

      • 400 - 600k is revenue, deductions 70k work related expenses.

      • Online based business. Technically I can work anywhere in the world and still operate. At times I have been somewhere outside of Aus and it’s businees as usual.

      • I believe we received bad advice from the start from them and Today I have decided that I will be changing accountants.

  • CyberMurning on 24/03/2018 - 17:30
    -1

    I know you asked serious questions but I'm afraid the answers you will get are not serious ones.

    Hip hip hooray ozb

  • Baysew on 24/03/2018 - 18:23

    How is your business structured, as a company or partnership?

  • cintamami on 24/03/2018 - 18:47
    +3

    Hello there

    I am a tax agent / business advisor by trade.

    Is your $400k-$600k a turnover or your profit? for this conversation, I'd assume you meant turnover.

    I think you are well past that points where you only look for a cheapish accountant to lodge your returns.

    To be honest, for them to only charge you $1,000 for the financial statements and income tax returns for your family group tells a lot. You have outgrown them and its time to find someone else that fits your business potential and capability.

    But, just a few considerations that you may have to give:
    1. What is your current business structure;
    2. Are you protected assets wise?;
    3. A good tax agent/business advisor would try to put safeguard around your positions and make recommendations on how you can potentially minimise tax and use a company as a tax deferral method (hopefully Bill Shorten fails);
    4. You may also consider putting money into super, however, this will depends largely on how you see mainly your family, yourself and the business in 5-10 years time.
    5. Introduce you to a financial planner that could help you build wealth (we are not licensed to tell you what to invest in, if you have an accountant/tax agent that offers "all in one place", I'd quite wary about their independence in looking after your interest first, commission seconds).

    If you wish to discuss it further, pm me :).

    More than happy to throw a few pointers.

    Kind regards

  • ihbh on 24/03/2018 - 19:54

    We have considered moving to a country that benefits us from a Tax perspective

    For example, some people restrict themselves from living in the US for <6 months p.a. to avoid paying tax, so people do do it.

    However, ask yourself how sustainable your business is, before even exploring this option.

  • horsome on 24/03/2018 - 20:20

    Be mindful, professionals and their staff need to eat and have shelter. If the reason you are sore about your accountant is because they charged you $1,000 then you are already off the mark. Then further seeking professional advice on a public forum with no recourse or validity puts you miles from the mark.

    If you feel burnt from your accountant talk to them, explain what you need, they don’t read minds, and they don’t run your business for you either but can call upon experience on various key situations in business. One of those experiences seeing new clients trying to get out of trouble trying to cheap out on professional advice.

  • mskeggs on 24/03/2018 - 20:32
    +5

    I don't feel as obligated or driven to pay such a large amount of earnings to the government.

    Pay your taxes.
    They pay for hospitals and roads and police and things we all need.
    You are earning an extremely high income, so you can afford it. I personally thank you for doing your bit.

    The other posts are correct about finding a decent accountant. They will be able to advise how to structure to make sure you aren’t paying more than you should. I wouldn’t be too worried about wealth building, it sounds as though you should just focus on your business as long as it remains so profitable.

  • eyeballz2770 on 25/03/2018 - 09:41

    Have you seen the Barefoot Investor, Scott Pape? Apparently, he has a show on channel 10 now but he wrote a book (Barefoot Investor). The book is easy to find at bookstores, online and offline. See if his advice makes sense to you and if there's not enough info for your particular situation, he offers personal advise, too.

    https://en.wikipedia.org/wiki/Barefoot_Investor
    https://barefootinvestor.com/

  • jhmtaylor on 25/03/2018 - 10:56

    I second the idea of using an accountant who can provide strategic advice and would add get a very good financial planner. Good advice saves you money, cheap advice costs you money.
    Hunt around for referrals to both of the above. The people who are really good at this stuff don't need to advertise, the clients search for them.

  • anthony t on 25/03/2018 - 12:36

    I wanted to include an article here I didn't write called 'Do I ask an accountant or financial planner?' but think it would be contrary to the rules. However, I looked up just this question on Google, and found heaps of very good advice (but lots that's just about selling you a product too). I think it's worth a few days of homework to get this right. I started and have been running an IT Company, now employing 40 people, for 30+ years, and did have the benefit of an accountant who was quite good at financial advice as well. We got better at this together! If I'd had the time over, and the money in the early days, I would have spent serious money getting the best possible advice, and setting up the best legal investment structures possible. IMHO, the best 'investment' in Australia is still a 'personal residence', even one that starts off more humble, and is sold for a better one (even allowing for some really crap 'stamp duties' in some states) or becomes an investment property as one upgrades the home. Good luck!

  • The tiger on 25/03/2018 - 21:06

    Your idea to leave this country because of “tax perspective “ is very unwise, since you are obviously doing well here, and a 27.50% company tax is really not a harsh one.i I doubt whether ( with due respect）you have charged a lot of “ other” items of expenses to your company to reduce your taxable income.Paying a sum of $1,000.00 to a professional accountant for preparing your company’s tax and perhaps your two’s returns is nut , and sure don’t expect him to give you his other tax management advice .Please don’t be stingy to employ a good accountant to help you to run your business. A good accountant can plan your business well to pay minimum amount of tax. Sometime I wonder why many business men like you not realising the benefit of getting good advice from a professional accountant on tax matter ( definitely not from a good book-keeper).

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