Saving tax is vital for small and medium sized businesses,
and often the best tax plans are those that take advantage of
existing rules and legislation, says David Kenney Chairman of
Hall Chadwick Chartered Accountants and Business Advisors.
"The rules and regulations governing tax can be quite
complex and sometimes almost incomprehensible, but there are
usually ways to make substantial tax savings if you persevere,
and take good advice on current legislation, what can and
can't be done," he says.
"A good example of incomprehensible tax legislation
would be the PSI legislation that is only triggered when the
income is owned by the PSI company. The legislation is complex
and businesses would need to be able to see through a mass of
words of the PSI legislation and ATO rulings."
Hidden Tax Laws
Mr Kenney also warns about other hidden tax laws, which,
once unravelled, can lead to additional tax savings in some
instances. "Tax law can be a whole minefield for those who
are not used to dealing with them," Mr Kenney says.
Choice of Legal Structure of a Business affected by Tax
"While most businesses will usually form some type of
legal tax structure such a company, trust or partnership to
carry out their business activities,, the choice of structure
has an impact on the how the business grows and what fiscal
costs it will incur, both at the structure level and its
members," explains Mr Kenney.
"The choice of structure is a mix of commercial, tax
and other regulatory considerations. It has an impact on the
after-tax returns either at the shareholder/member level or
entity level, depending on what after-tax return is important
to the decision maker.
"And for companies expanding their businesses outside
Australia, when they structure across borders, they need to
take account of different countries' requirements and
laws. Therefore, legal structures need to be closely considered
to allow for changed business circumstances or the changes in
"Some businesses may be inefficient and pay more taxes
to the Government than are legally required, in which case the
after tax returns are reduced. Structuring to provide greater
tax rewards usually focuses on tax
concessions, such as exemption for non-residents paying tax
on Australian property and exemptions from tax, as on the sale
of pre-CGT shares.
Mr Kenney says that for a business to succeed it needs to
grow not only in assets but in people, and also in liabilities
to finance the growth. "For serious financing not only the
asset needs to be in the right country, the financier needs to
be happy that the country's courts will protect the
rights of the lender.
Maximise After-Tax Bottom-line
"A business owner is only interested in the "after
tax" bottom line. With care and forethought, businesses
can minimise income tax liabilities by trading in areas that
have lower fiscal costs of operation so that after tax dollars
are higher and there are more funds for businesses. It is
equally important to make sure that Australian tax legislation
does not attribute the income generated overseas and allow
those profits not to be repatriated to Australia and not to be
Employment Considerations affect Tax Planning
In addition to careful tax planning other key factors to
consider are the laws on employees, especially where companies
have businesses abroad and labour is seconded or contracted.
"Businesses also need to take account of any specialist
tax legislation that affects a particular type of business,
such as the Superannuation Guarantee Levy in Australia, which
imposes a superannuation contribution cost on all employers of
Australian employees which amounts to 9% "on cost" in
Australia or a 9% reduction in wages.
"So, long-term planning and structuring is essential
for any business, Mr Kenney concludes. "That is where
premium tax savings are to be found."
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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