As a family business owner with significant business debt or a large property portfolio, it’s essential to develop effective tax strategies to manage that higher cost of debt – even if the Perth economy has, by and large, held up. By understanding the Australian and international tax laws from your Perth tax accountant, you can take advantage of various incentives and deductions to help reduce your tax burden. In this blog, we will discuss some key tax strategies that can benefit Perth family business owners in similar situations.
- Consolidate Debt:
Consolidating your debts can help reduce the overall cost of servicing them. Business owners with multiple loans can potentially reduce interest rates and simplify their financial management by combining their debts into a single loan.
Ensuring that your finances are up to date and your bank reports are clear is critical to getting on the front foot of your banking relationship. Getting your Perth business accountant to structure your reports is a fundamental step to reducing your total cost of debt.
- Leverage Negative Gearing:
Negative gearing is a popular tax strategy in Australia, which allows investors to deduct the expenses associated with an income-producing property (e.g., interest on loans) from their overall taxable income. If the rental income from a property is less than its expenses, the loss can be offset against other income, reducing the overall tax liability.
- Utilize Capital Gains Tax (CGT) Concessions:
Australian tax laws offer several concessions for small (ish) businesses, including CGT exemptions and discounts. By taking advantage of these concessions, business owners can reduce their CGT liabilities on the sale of assets or property. Some examples of CGT concessions include the 50% active asset reduction, retirement exemption, and small business 15-year exemption.
- Exploit International Tax Treaties:
Australia has tax treaties with many countries to prevent double taxation and encourage international trade. If your business operates in multiple countries, understanding these tax treaties can help you minimize your global tax liability and in dealing with the ATO for your offshore income. In essence the higher interest rates might allow for a higher interest bill to be paid to an offshore related company that has lent you money.
- Claim Depreciation:
Business owners can claim depreciation on their property and assets, reducing their taxable income. This includes the wear and tear of buildings, machinery, and equipment used for business purposes. Ensure that you have a comprehensive depreciation schedule in place by either reconstructing your construction invoices or engaging a quantity surveyor to prepare a tax depreciation report on how much you can claim as a tax deduction.
The depreciation tax concession for property owners is a key way that real estate can be a tax-effective investment.
- Utilize Trust Structures:
Establishing a trust structure can provide tax benefits for business owners with substantial property portfolios. Trusts can help distribute income to beneficiaries in a tax-efficient manner, and in some cases, protect assets from creditors.
- Engage in Tax Planning:
Proactive tax planning is essential for business owners looking to minimize their tax liabilities. By working closely with a tax expert, you can identify tax-saving opportunities tailored to your unique financial situation. Regular tax planning sessions will ensure that you are consistently taking advantage of the latest tax incentives and deductions.
- Vary your tax instalments:
If you are now generating less income because you are paying a higher interest cost your taxable income will probably be lower. So consider undertaking a tax variation that will reduce the amount of PAYG Instalment Tax or PAYG Withholding Tax you are paying quarterly.
- Optimise your loan portfolio:
If your are not managing your loan portfolio prudently through a strategic structuring of mortgage offset accounts it might be that you are not generating (either now or later on) a tax deduction for interest paid on your debts. If you tax effectively plan your loan portfolio you can properly marry loans to those that are tax deductible and alleviate the tax burden that comes with not having tax deductible interest expense.
- Review private company loans:
If you have borrowed money from a private company you might be paying interest to yourself under a piece of tax law known as “Division 7a”. As interest rates increase your tax obligations to pay interest to related entities also increases.
So consider reviewing the private company loan agreements and make sure that the tax benefits from structuring your loans under Division 7a of the 1997 Tax Act are still worthwhile.
Managing the high cost of debt across your business and property portfolio requires a strategic approach to tax planning. By understanding and leveraging Australian and international tax laws, you can optimize your tax strategies and reduce your overall tax burden. Engaging with qualified Perth tax accountants backed by an international network will help you navigate the complex world of taxation and make informed decisions for your business.