Tax Mitigation Solutions for Businesses

The entities you use in your structure will play a critical role in how you are taxed, and how much you are taxed.

A sole trader will be taxed at whatever their marginal tax rates are. They also have to contend with specific business loss rules. Together with wealth protection reasons, we seldom recommend a sole trader structure.

The partners of a partnership will also be taxed at their marginal tax rates. There is some limited flexibility to save tax, such as using uneven partner salaries. For many situations, it is advisable to avoid a partnership structure.

A company will be taxed at its relevant flat tax rate, which is typically less than the individual tax rates. However, when the company pays a dividend, this may lead to “top-up” tax.

Your earlier choices around structuring may alleviate or mitigate the top-up tax; such as whether the shareholders are individuals or a family trust. For this reason, plus other criteria, we usually recommend a company with family trust shareholders.

Throughout Australia, family trusts are a very popular vehicle for tax purposes. They don’t pay tax, but rather the beneficiaries do. The structure provides fantastic flexibility for mitigating taxes year after year. So, when we’re advising a family business, a family trust will almost always be involved.

Other trust options include unit trusts and hybrid trusts. These are typically used when you want benefits of a trust structure but have business owners from different families.

Within the conversation of saving tax using structures, a self-managed superannuation fund (SMSF) may be considered. For instance, the business premises might be owned by a self-managed superfund.

Since businesses come in all different shapes and sizes, family and non-family members, small or big business aspirations, there isn’t a one-size fits all solution.

That doesn’t mean that structuring has to be hard. In fact, it’s often a simple process. But, it’s vital to get right from the beginning, and revisit it from time to time to ensure it remains tax-effective as the business grows.

If you’re unsure about the tax effectiveness of your structure, please reach out to us, as we’d love to help.

Generally speaking, individuals, partnerships, companies, trusts, co-operatives and Self-Managed Superannuation Funds (SMSF) are required to lodge an annual income tax return in Australia.

The Australian tax system places the onus on you, the taxpayer, to know the rules and apply them correctly in your tax return.

With the tax laws changing regularly and new case law being established by the courts day-in and day-out, it is almost impossible for business owners to stay abreast and fully informed of tax obligations without the assistance of a professional accountant.

We’re here to collaborate with you, and your team when necessary, to share our knowledge and expertise and to ensure accuracy in your tax returns.

Whether you are an established business or a start-up embarking on a new venture, our proactive accountants will work with you to ensure that your hard earned wealth is protected and that you are paying as little tax as legally possible.

You can have complete confidence knowing that your business and personal tax affairs are in capable hands.

So, if you’re needing assistance with preparing an income tax return, then please give us a call. We’re here to help.

If you find yourself in a tax dispute, you’re going to want have an experienced winner by your side.

Munro’s have those wins.

Whilst we’re always doing our best to prevent a tax dispute in the first place, sometimes you might find yourself defending in an audit, objection or tribunal situation.

In our experience, very few of our clients are audited. We’re confident this is because we have a solid reputation for doing things the legal way.

Since audits are few and very far between, our clients immediately have peace of mind. They get on with taking care of their business, rather than worry about a potential audit.

When we do see an audit, it’s usually a high wealth review. Once your business and/or wealth is around $50 million plus, you’re likely to be pulled into the regular high wealth review program.

Our role in the process is to sit between you and the ATO, finding out what the ATO wants and helping you put the replies together to get them off your back as soon and as painlessly as possible. It’s a strategy we excel at.

There comes other times when you might need to object to a tax assessment or decision. In these instances, we use our experience and research techniques to consider the avenues to success, and where we determine a successful outcome is realistic, we help you throughout the objection process.

Over the years, our clients have saved thousands upon thousands of dollars due to successful objections.

In the extremely rare instances that an objection is not successful, but we feel confident you have been wronged by the outcome, we have the option to go to the Tribunal.

We’re limited by what we can say here, due to confidential settlements. What we can say, is that if you want to have an experienced winner by your side, then you’ll have that with us.

So, what’s it like being a client of Munro’s? You ordinarily don’t have to worry about tax disputes because we legally minimise your taxes and seldom experience ATO audits. In the cases where an audit, objection or Tribunal situation arises, you have the winning experience by your side.

Is your company thinking about lending money to a shareholder or associate, or forgiving a loan it provided to a shareholder or associate in the past? If so, these arrangements might be captured under the Division 7A framework.

Division 7A consists of rules that private companies must follow when they lend money to their shareholders or associates. Its purpose is to stop private companies from providing tax-free benefits to their shareholders or associates.

When does a Division 7A issue arise?

A Division 7A issues arises when a payment or loan is made from a private company to one of its shareholders or associates.

Some examples of the typical types of transactions that may attract Division 7A are as follows:

• Loans or advances given to shareholders or their associates without a loan agreement.
• Payment of private expenses from the company’s bank account.
• When a private company forgives a debt owed by a shareholder or their associate.
• Providing use of company assets for less than their market value.
• Unpaid entitlements – This is where a company is entitled to receive a distribution from a family trust, but the actual payment is not made to the company, and the funds remain with the trust or are used by the trust, shareholders or their associates.

What happens if Division 7A is triggered?

Where Division 7A is triggered, the shareholder or associate who receives the payment, loan or forgiveness may be deemed to have received a dividend, potentially up to that specific amount.

This deemed dividend would be unfranked, which means that the shareholder or associate would essentially pay double taxation on company’s profits.

The double taxation happens because the company initially pays the tax on the profits earned within the company without the shareholder or associate receiving any franking credits for these payments.

The deemed dividend is then recognised in the shareholder or associates income tax return as an unfranked dividend and tax is paid on this amount at the shareholder’s or associate’s individual marginal tax rate.

Ways to prevent triggering a Division 7A deemed dividend?

These are some of the ways to prevent triggering a Division 7A deemed dividend:

1. Consider purchasing investments through a company, because company to company loans are not subject to Division 7A.
2. Put in place a complying Division 7A loan agreement.
3. Calculating the company’s distributable surplus.

The deemed dividend under Division 7A is capped by the company’s “distributable surplus”.

Are you interested in learning more about the strategies and requirements to properly manage your Division 7A loans?

Then please contact us today to learn more about how we can help you effectively manage your Division 7A exposures.

Let’s be very open, there are many good advisors who can handle tax very well. On the spectrum between poor, average and exceptional, we sit in the group delivering exceptional advice…. and we have the proof to back this up.

For instance, there’s our pioneering involvement in the blockchain industry.

Years ago, we were one of, if not the first, to commit extensive professional help to those using blockchain and cryptocurrency. We did this because we saw many Australians struggling to understand their tax obligations, and even more importantly, failing to take the necessary steps to legally minimise their taxes.

Through this process, we gathered a wealth of knowledge of how to help our fellow Australians. This led us down a journey where many people came to us with some extraordinarily complex situations. Being passionate about finding clever ways to legally minimise tax, we took those challenges on. We’re extremely proud to say those clients well and truly got their money’s worth.

Sometimes people running large, or small, businesses come to us to double check the state of their tax affairs. Unfortunately, things aren’t always perfect and we’re tasked with fixing up historical messes.

In situations like this, we help those business owners come to terms with the tax dilemma they face, and with our experienced outside-the-box thinking put in place measures to mitigate the tax damage as much as legally possible. Then we move forward to a programme designed to proactively mitigate problems arising in the future.

There are a great many additional examples we could provide. Including the clever top-hatting solution we implemented to proactively help a client alleviate their Division 7A problems.

But rather than you just take our word for it, we suggest you take a look through the collection of 5 star reviews submitted on Google, which place us in the Top 2% of Australian Accounting Firms.

If you have a complex tax problem, or want to proactively avoid them, please do let us know. We’re here to help.

When it comes to selling your business, you want to make sure that you keep as much of your hard-earned wealth in your wallet.

Here at Munro’s, we are proud to have successfully saved our clients hundreds of thousands of dollars in taxes using smart and proactive tax strategies. We’ve done this through legal measures, to ensure that our clients can sleep peacefully at night.

Here’s an example of what’s possible.

In this example, our hypothetical client is selling their business, including business premises. Normally, this would trigger significant capital gains tax. However, through comprehensive research and analysis, we are able to help our client utilise both the Small Business Rollover and Retirement Exemption to reduce the capital gain tax down to NIL.

This is the perfect strategy for our hypothetical client since it also allowed them to access all of the sale proceeds because they’re over the age of 55 years, meaning they don’t need to deposit the sale proceeds to their superannuation account.

As another example, we might have a client selling their business who could benefit from the use of a “bucket company”. How so? By spreading out the taxes on the business sale over many years.

This not only delays some of the taxes, but also reduces them too.

In this example, the benefit to our hypothetical client could include their ability to use the initial savings to make investments in blue-chip shares, which then grow in value and allow them to accumulate more wealth.

Smart and proactive tax strategies are not limited to what we have just shared with you. The most important thing for you to understand is that often, to save tax, you need to be proactive.

A couple or more years before selling, you should instigate forward planning. This can allow sufficient time to identify the best strategies for your unique circumstances, as well as sufficient time to implement changes, if necessary, a couple or more years before sale.

So, if you have a business, naturally at some stage it will be sold or handed down to the next generation, and to achieve this in a tax effective manner we highly recommend you prepare in advance. Please feel free to reach out, we would love to help you.