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 considerations
"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 law.
"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 further taxed."
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."
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