El­i­gi­bil­ity the first check for tax cuts

Southern Gazette (South Perth) - - NEWS -

into their busi­nesses to boost em­ploy­ment and in­vest­ment.

Be­fore the changes, com­pa­nies with turnovers be­low $2 mil­lion would have been pay­ing tax at 28.5 per cent and those with turnovers up to $10 mil­lion were be­ing hit with the full cor­po­rate rate of 30 per cent.

The tax rate will keep fall­ing to 25 per cent in a decade and even­tu­ally ap­ply to busi­nesses with turnovers of up to $50 mil­lion.

It’s a bonus for small busi­ness own­ers, but the chal­lenge is mak­ing sure they can take ad­van­tage of these sav­ings.

The first thing to work out is if their com­pany is el­i­gi­ble for this lower rate, Adrian Raftery, as­so­ciate pro­fes­sor at Deakin Busi­ness School, said.

“Although these tax cuts are la­belled ‘small busi­ness’, they are avail­able only to those who op­er­ate via a pro­pri­etary lim­ited com­pany,” Mr Raftery said.

“If you are a sole trader or part­ner­ship or trade via a fam­ily trust, then these tax cuts are not ap­pli­ca­ble to you.”

But don’t race to change a cor­po­rate struc­ture just to take ad­van­tage of tax cuts, as this may be con­sid­ered tax avoid­ance.

“Other le­git­i­mate rea­sons for switch­ing to a com­pany struc­ture may in­clude the em­ploy­ment of staff, in­surance pro­tec­tion of lim­ited li­a­bil­ity, as well as con­di­tions of cer­tain con­tracts,” Mr Raftery said.

Busi­ness own­ers who con­sider tak­ing added in­come out of the com­pany, ei­ther as a wage or a div­i­dend, should con­sider that this in­come will be taxed at the in­di­vid­ual tax­payer’s mar­ginal tax rate.

“Any tax sav­ings that the lower com­pany tax rate pro­vides would ef­fec­tively be lost,” he said.

An­other way to ben­e­fit is putting busi­ness de­duc­tions in a per­sonal name.

“If you are deriv­ing a tax­able in­come above $37,000 per­son­ally, then look to have busi­ness-re­lated ex­penses such as mo­bile phone, home of­fice ex­penses and cars in per­sonal names and get a higher per­cent­age back from the tax of­fice based on your mar­ginal tax rate,” Mr Raftery said.

“The down­side is that your per­sonal cash flow will di­min­ish as you are us­ing per­sonal rather than com­pany funds.”

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