Accounting for Small Business

budgeting-paperclipsSmall Business advisors and accounting specialists at Silvan Ridge can assist in business planning and procedures, and provide advice and expertise to ensure your business finances and tax liabilities are structured to your maximum advantage.

Read through our resources below for general accounting planning information, or contact us for personalised planning assistance.

 

Tax minimisation

Companies pay tax at a rate of 30 per cent. In the case of trusts, the income is usually distributed to the nominate beneficiaries and then taxed at the rate that applies to those individual beneficiaries.
Superannuation funds are taxed 15 per cent unless the fund is paying a pension. In that case, the tax rate is 0 per cent on the earnings in the pension account.
Forward planning is the key to tax minimisation. That process begins with having the correct business structure in place.

Business structure

As set out above, different tax rates apply to different business structures. One of the best ways to reduce the amount of tax you pay is to split your business or investment income.
If your business income is relatively low, or if you are running at a loss, a sole trader or partnership may be the best option for you. These structures will help you take advantage of lower, personal tax rates.
But once your income exceeds $80,000 per year, you will step up into the higher tax bracket, meaning your income will be taxed at a higher rate. In this instance, Companies or Trusts may provide you with some tax relief. But these more complex structures come with greater tax complexity and will be more expensive to administer. This is the realm of dividends, franking accounts, fringe benefits tax, trust distribution and so on.

Superannuation

Another common method of reducing tax is to salary sacrifice part of your income into superannuation. This is particular popular among those in the higher income brackets, largely because it is possible to claim a tax deduction at 46.5 cents in the dollar. That said, when you do access your superannuation funds, you may be liable to pay tax.

Buying and selling assets

You can be taxed on the income derived from the sale of assets. However, ensuring those assets are purchased in the best type of entity in the first place can help minimise your tax.
As an example, Superannuation Funds are taxed at 15 per cent, so it can be beneficial to hold assets here rather than in your own name. Similarly, additional tax discounts can apply to Trusts and self-managed funds.

A thorough understanding of legislation underpinning Capital Gains Tax can also be helpful. For instance, if you have owned an asset for more than a year, you are generally entitled to a 50 per cent Capital Gains Tax discount. In this case, deferring a sale of an asset you’ve held less than 12 months would be prudent.
You may also opt to sell an asset in a particular financial year as your income may be lower in that year.
As with all tax minimisation, the key is careful forward planning.

Tax minimisation checklist

  • Plan ahead
  • Have the best business structure for your situation
  • Structure the ownership of your assets
  • Undergo an annual tax planning exercise

Small Business Accounting Resources