As the new financial year begins, it’s the perfect time to think about how you can optimise your tax structure. Getting your tax structure in order can help you protect your assets and minimise your tax liabilities.
Here’s a look at some popular tax structures, including Trusts, Companies, and Self-Managed Superannuation Funds (SMSFs), and how they can benefit you.
Why organise your tax structure?
Organising your tax structure has several benefits:
- Asset Protection: Different structures can help shield your personal assets from business risks and creditors.
- Tax Minimisation: Efficient tax planning can reduce your overall tax burden, keeping more money in your pocket.
- Flexibility in Estate Planning: Certain structures allow for easier distribution of assets according to your wishes.
Trusts
Trusts are a versatile option for managing and protecting your assets. There are various types of trusts, including family trusts and discretionary trusts, each offering unique advantages.
Benefits of Trusts:
- Asset Protection: Assets held in a trust are generally protected from creditors, providing a layer of security.
- Tax Distribution: Income generated by the trust can be distributed to beneficiaries, potentially reducing overall tax liabilities by taking advantage of lower tax rates.
- Estate Planning: Trusts can facilitate the transfer of wealth to future generations according to your wishes.
Companies
Setting up a company is another effective way to manage your tax obligations and protect your assets. Companies are considered separate legal entities, which provides significant benefits.
Benefits of Companies:
- Limited Liability: Shareholders’ personal assets are protected as their liability is limited to their shareholding.
- Tax Rates: Companies are taxed at a flat rate, which can be lower than the highest personal tax rate.
- Retention of Earnings: Profits can be retained within the company for future growth or investment, potentially deferring personal tax obligations.
Self-Managed Superannuation Funds (SMSFs)
An SMSF allows you to take control of your superannuation investments. It’s a great option for those who want more control over their retirement savings and potential tax benefits.
- Investment Control: You have the flexibility to choose and manage your investments, including property, shares, and other assets.
- Tax Benefits: SMSFs enjoy concessional tax rates. Income is taxed at 15%, and capital gains may be taxed at 10% if the asset is held for more than 12 months.
- Estate Planning: SMSFs can provide more control over the distribution of your superannuation benefits upon death.
Choosing the right structure
Selecting the right tax structure depends on your individual circumstances, including your financial goals, the nature of your assets, and your risk tolerance. It’s crucial to seek professional advice to determine the best option for you.
Steps to get started
- Review Your Current Situation: Assess your existing assets, liabilities, and overall financial position.
- Set Clear Goals: Define what you want to achieve with your tax structure, such as asset protection, tax minimisation, or estate planning.
- Consult a Professional: Work with a tax advisor or financial planner to explore your options and implement the best strategy.
- Monitor and Adjust: Regularly review your tax structure to ensure it remains aligned with your goals and any changes in legislation.
Starting the new financial year with a well-organised tax structure can set you up for financial success. Whether you choose a trust, company, or SMSF, each option offers unique benefits that can help you protect your assets and minimise your tax burden.
Take the time to explore your options and seek professional advice to make the most of the new financial year.
Learn more about working with APS Tax & Accounting.
Written by Richard Ferraro, Chief Financial Officer & Head of APS Tax.
Richard is a graduate of the Australian Institute of Company Directors (GAICD) and Fellow Certified Practising Accountant (FCPA) with 3 decades of experience in Financial Accounting, Tax Compliance and Advisory. Prior to the 11 years currently working at APS, Richard was a partner in a top 100 accounting firm, and a Taxation Manager for large corporations such as Nissan Australia, Bendigo and Adelaide Bank, NEC Australia and Australia Post. Richard supports his clients across a wide range of services including tax compliance and advisory services to clients who are Companies, Trusts, Partnerships, Self Managed Super Funds, When Richard isn’t working he enjoys spending time with family and friends, watching the mighty Magpies, and anything to do with cars from F1 to supercars and collectables.