The Most Tax Efficient Company Structures to Reduce Tax Burdens

Return to Wealth Safe Blog

Wealth Safe Video

Discuss Your Options

Complete the below form to discuss your options with us.

  • This field is for validation purposes and should be left unchanged.

tax-efficient-company-structures
Don’t use a moat - use tax structures to fortify and protect your money.

I believe that one of the most common problems with governments is that most people are completely desensitized to the blatant acts of theft they perform on the unwitting Australian public every day. When I consult with high-income earners about creating tax-efficient company structures, I need to remind them of this.   

Let me paint a picture for you.

Imagine you were on a date with your wife, ordering a nice meal, and the dish comes out to your table. But the burger has 4 bites taken out of it, half the chips are missing, and someone has clearly taken swigs of your drink. You’d be pretty miffed. But when the bill comes due, you’re still charged full price for the whole meal. 

What the...?

Yet that’s essentially what the Australian government does to us every day in the form of income taxes. After a typical high-income earner makes over $400,000 a year, the greedy Australian Tax Office claims that their fair share is at least 40% of your hard-earned cash. But because it’s the government, we all forget how atrocious that would look in any other part of our lives. 

What a rort!

The Heavy Burden on Australian Taxpayers

While Australians don’t face the world’s worst tax rates, they are certainly represented on the podium. 

Have a look at what the rest of the world’s high-income earners take home from their pay packets. This is all according to a Price Waterhouse Cooper study performed in 2013, based on an equalized personal income of $400,000.

Germany 60.61% ($242,440)
Australia 59.3% ($237,200)
France 58.1% ($232,400)
UK 57.28% ($229,120)
India 54.9% ($219,600)
Italy 50.59% ($202,360)

It may be tempting to look at this graph and say, “well, at least we’re not as bad as Italy”. That may be true, but I still think willingly giving the government over 40% of every dollar you make is not good enough. It should cause every Australian to rise up and, in one loud voice, proclaim

Not happy, Jan!

Look at it from another angle.

Let’s say that you’ve done extremely well this year decide to reward yourself with a new electric car. You’ve had your eye on a nice, shiny red model, and the current price is $50,000. 

You go to the dealer, make all the arrangements, then go to sign the paperwork. But you get a shock. On the bottom line, the price is marked at $84,317.

Wait a minute. The $50,000 price is what was advertised. But why is it now $84,000? 

Simple, that $84,000 figure is how much you’d have to earn, allow the ATO to take their share, and then you could afford that $50,000 car.

Something’s not right here. I smell a rat. 

Reducing Burdens: Keeping More of Your Money

As you might be able to tell, I’m no fan of the Australian government. You just have to take one look at the outrageous lifestyles of our politicians to understand that the government’s spending is not exactly forthright. 

But it might surprise you to know that I was once one of them. 

As a tax accountant, I spent ten years behind the desk of the ATO, working on their behalf to extort the Australian public of their incomes before I started my own tax specialist practice. I saw firsthand the effects of the bloated tax system and how too many Australians are willingly subjecting themselves to high tax rates without understanding that there are better ways to protect your hard earned wealth and stop others reaping what you’ve sown.

So, I started advising the super-rich on how to protect their money, 100% legally.

I want to emphasize that. I don’t support evading or avoiding taxes. That’s illegal. Instead, what I support is a completely 100% legal way to minimize your tax burden. 

In fact, my name was one of the names that were revealed in the Panama Papers. Some of the quotes in that article completely justified what I am telling you now.

“Having an offshore company is not illegal for the law-abiding”

“The ABC is not suggesting any illegal behaviour or wrongdoing by Mr. Black”

“...his offshore company was completely legal”

So I can sleep safely at night knowing that we do things 100% legally. 

So the question is, how do I advise Australians to minimize their taxes? How do I reset the ledger so that the Australian government doesn’t get their hands in your cookie jar? 

Very simple. I help advise and establish tax-efficient company structures (among other things) for my clients. Let me show you what I do.

Tax-Efficient Companies

The goal of creating companies for your wealth is to start to add layers of protection between yourself and the Australian government. If you want to do what the super-wealthy are doing to protect your money, do what they do. 

Start with a Tax-Efficient Company Structure

For starters, individuals and companies are taxed at different rates. Individuals earning more than $150,000 a year would find it beneficial to set up a company to protect their wealth. Individuals are taxed at a marginal rate of 48.5% while companies attract a 27.5% tax rate.

For example, if you were earning $400,000 a year, you would taxed $165,632 as an individual for that year. But should you decide to use the structure of a company, you could legally reduce that to $110,000, saving over $55,000. 

What could you do with an extra $55,000 a year? Travel? A new addition to the home? College funds for the kids? 

The good news is that it’s relatively easy to set up a limited liability or a Propriety Limited company. It’s also very cheap as well. And instantly, you can save thousands of dollars through this one act alone. 

But one catch, you have to be careful about how you take out money.

I have heard of cases a client who, for example, planned to withdraw a big stack of money from the profits in his company. He wanted to make a $200,000 downpayment on a home. But because he didn’t consult with a tax specialist, he was stricken with the dreaded Div 7A tax laws which left him with a staggering 78.5% tax rate on his personal drawings. 

This is why trusts and bucket companies (and knowing how to use them) is so important.

Use Trusts and Bucket Companies

When talking with my high net worth clients, they all talk about wanting more control over their own money. And to help them with that, I build discretionary family trusts. It allows you more control over how you divide and distribute your money to gain an even greater tax advantage.

You also don’t own the assets, you control them. This is especially good when looking for protection from lawsuits or the government. Trusts can also distribute into a slosh company, or a bucket company. Trusts aren’t useful for holding wealth. Bucket companies are. The reason you use bucket companies is to act as a beneficiary for your trust, receiving your income and holding in a tax-efficient structure designed to minimize your tax burdens. 

NOTE: One particularly useful way to use a bucket company is to hold your income until your marginal tax rate is lower, reinvesting it back into your trust to distribute at your leisure and in your time.  

Become Sovereign and Create Offshore Companies

One way to deal with it is to pick up your bat and ball and find new kids to play off. 

That is, many of my clients are basing overseas and spend less and less time in Australia. Indeed, it makes perfectly logical sense for them to base themselves overseas, effectively reducing their Australian tax burden legally to 0%. 

Can you do this? Yes. But it’s not for everyone. It depends entirely on the type of business you operate and your own willingness to leave Australia and move overseas, among other things.

Indeed, if you look at history, you can see that more and more people head offshore to protect their wealth before a massive economic collapse. They did it before the fall of the Roman Empire, and they’re doing it today. 

One caveat: before doing this, it is imperative that you comply with strict tax office rules. For example, if you plan to stay in Australia, you have to comply with the CFC and CMC laws among other things. Which is why the easiest thing to do is to meet the requirements to become a non-resident of Australia and spend more than half the year overseas, you can 100% legally reduce your tax burden to 0%. 

Depending on your business and operations, this could be a move that’s easier than you think. 

You need professional tax advice to ensure that you do this properly and abide by all laws, both here and abroad. The consequences of getting it wrong can be devastating and leave with a horrible tax shock.  

What Do I Do Now? 

You have three options to reduce your tax burdens using tax-efficient company structures. 

  1. Do it yourself. It takes years of experience and study to understand the complex tax laws, both in Australia and internationally. You could do it yourself, but why risk it?
  2. Trust your accountant. Sure, you could try that, But is your accountant is working for you? Or do they seem like they’re working more for the ATO? Too many high-income earners are using accountants that are just glorified bookkeepers, using the same inefficient strategies as everyone else. Their accountants are more concerned about not upsetting the ATO than about minimising your tax.
  3. Consult a higher level tax specialist. In the same way that people go to medical specialists rather than a GP for advanced conditions, you can talk to someone who is a specialist in higher level tax strategies. You need someone like that who has a full and deep grasp of the tax laws, as well as a creative mind that comes up with “out of the box“ solutions to help you minimize your taxes 100% legally. 

In my humbly biased opinion, I believe that you should take Option #3. 

In a 2016 article in the Sydney Morning Herald by Peter Martin, he demonstrated that of the 58 wealthiest Australians, only 2 paid any income tax.  Those two only paid $3603 and $4 each. Yes, that’s no typo. He concluded that it was their ability to work with higher level tax specialists to protect their income. 

You can always talk with us to learn how to model the same principles as the richest people in Australia to protect your money. We work with high net worth clients just like you and help prepare them using company structures designed to legally minimize their tax bills. 

Why talk to us?

Very simple

  • As reported in the Panama Papers, we don’t defraud the ATO
  • We don’t do what everyone else does
  • We’re passionate to minimise people’s taxes and keep their interests as our priority. 
  • We don’t suggest strategies only designed for low-income earners.

We have many high net worth clients, including one client who was listed on the Financial Review Rich List, and we’ve helped them save hundreds of thousands of dollars, keeping more of their own money in their pockets. And we can do the same for you. 

Contact us today to set up a free, no-risk consultation and assessment of your particular position. Fill in our online form to arrange your consultation today.