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Before I get right into the meat of this article, showing you how you can pay less tax as a limited company, I want to share something with you.
The other day, I was reading an article by Peter Martin in the Sydney Morning Herald that caught my eye. I’m sure it caught many Australians eyes as well.
In it, he explains that of the 58 richest and highest income earning Australians, only two of them actually paid any income tax. One paid $3603. The other? Just $4.
The average yearly income for these extremely wealthy individuals was $2.3 million a year. Each!
Were these rich people lucky?
Were they cheats?
Were they rorting the system, soon to be caught out and fined or imprisoned?
Hardly. They knew that the best way to minimize their tax burden was to find someone who could help set up 100% legal tax structures to protect their hard-earned cash.
And while they all had different techniques for minimizing their taxes, the tax structure they favoured was the use of a limited company to pay less tax.
But before we talk about the solution, we have to talk about the problem.
Does thinking about tax time give you stress?
Even without knowing your specific situation, the answer is a resounding ‘Yes’. Kerry Packer remarked that “if anybody doesn’t minimize their tax, they want their heads read”.
Mr. Packer is all too aware, as I’m sure, the Australian government isn’t exactly renowned for spending their money well. Every time it comes to tax season, you probably share that same emotion, wondering why you’re giving up huge chunks of your income to a government that doesn’t treat with great respect.
Not only that, the tax burden in Australia is ludicrously high, compared to the rest of the world.
According to a study done by Price Waterhouse Cooper, the tax rate for high-income earners in Australia is right up there among the highest in the world.
Have a look at this graph* to understand how much the government will allow you to take home after they’ve put their hands into your pockets.
*Based on a yearly income of $400,000
Look at it another way, if you will.
In order to have the privilege of spending $236,000, the government wants you to earn $400,000 before they’ll permit you to spend it.
As Shakespeare put it, “something’s rotten in the state of Denmark”. Or in this case, Australia.
What are you meant to do about it?
In the article I referred to earlier, you might have one of two reactions.
The first is this: How dare the 1% get away without paying their fair share!
The second is more helpful: How can I do what they did?
I can legally show you how to pay less tax using what we call tax structures. Haven’t heard of this? I’m not surprised.
What many high net worth people don’t know is that their accountant isn’t on their side. The accountants are frightened of the Australian Taxation Office, scared to make one wrong move and get into trouble. And as a result, you do what everyone else in this country does, and you get the same results. Paying higher taxes.
But what if you didn’t do what everyone else does?
What if you could find a higher-level tax specialist who was on your side, not on the side of the ATO? Just as you would consult a specialist for your medical conditions, why not consult a tax specialist for your taxes? What if you could use 100% legal means to minimize your tax, and keep more of your money in your pocket?
Let me show you what I mean.
One of the fastest ways to give money to the Australian government is to earn it as an individual. In the eyes of the ATO, individual Australians are their personal piggy banks, just existing to make them money.
The answer to this is to create structures that attract less tax and protect the assets you already have. One of the simplest and most effective ways I know of to do this is the use of the limited company.
The essential nature of a company is that it’s designed to be separate from the shareholders of that company. It can sue and be sued. It has a legal name. It has a legal identifier (the ABN). And it can own property (although I suggest against that).
And because it’s separate, the shareholders of the company aren’t legally liable to pay the debts of the company from their own personal assets.
As an individual, your income attracts one of the highest tax rates in the world, as we’ve already seen. But as a limited company, you have the benefit of a lesser tax rate. Let’s see what this looks like.
Edgar has a healthy income of $300,000 a year from his investment business. His neighbour, James, also makes $300,000 as a licensed private practitioner in his town. While Edgar earns everything under his own name, James has set up a limited company through which to conduct business.
At tax season, Edgar is liable to pay up to 48.5% tax rates, the highest personal marginal rate possible, including the Medicare levy. But James, through his company, is attracting a tax rate of just 27.5%, significantly lower. As a result, he takes home at least $36,000 more than Edgar because of his strategy.
Imagine what you would do with an extra $36,000 a year? Take a couple of cruises? Book a week-long holiday in the Whitsundays? Buy a car?
And that’s just the start. The scope of this article doesn’t discuss the other structures available to you like Family Trusts, Bucket Companies, or Superannuation. (Mind you, we are not licensed professionals to deal with superannuation, so we can only give general educational discussion on this topic.)
For ten years of my life, I was working behind enemy lines as an auditor for the ATO. But after a decade there, I wanted to help high net-worth clients minimize their taxes, especially when it’s possible for everyone to do.
Wealthsafe will advise individuals on how to pay less through the use of structures just like limited companies. One client of mine was able to save over $100,000 of his profits in an options trading business. I had another client use the structures he already had in place to, optimizing them for his situation and was able to recover $200,000 a year from the hands of the ATO.
Sometimes, it’s not enough to play better ball in Australia. Sometimes, you need to pick up your bat and leave to find a better pitch to play.
I help many of my clients become sovereign and take their business offshore. If you’re able to meet the strict legal conditions, you’d be surprised how easy it is to establish foundations and companies overseas to legally reduce your tax to $0.
And I do mean legal. I’m not in favour of evading or avoiding taxes. Indeed, it sounds too good (or too illegal) to be true, and so when my name was mentioned in the Panama Papers, the ABC did an investigation on my practices.
Let me highlight their findings.
“Having an offshore company is not illegal for the law-abiding”
“...his offshore company was completely legal”
“The ABC is not suggesting any illegal behaviour or wrongdoing by Mr. Black.”
Using 100% legal methods, I help people reduce their taxes and keep more of their money in their pockets.
You could do nothing.
You could sit there, inactively hoping that your accountant will look for solutions that favour you, not the ATO. But how well has that worked for up until now?
Or you could talk to us. With a quick 15-minute strategy session, we can give you a free assessment of your options and show you what’s possible in your situation. I had one client who was able to take their business offshore and use non-residency to legally save thousands and thousands each year, even though he describes himself as a “tax dummy”.
Dummy or no dummy, you want to take action with your finances. It’s so simple. Fill out the contact form and we’ll set up a free session with you about your potential next steps. Take action today. Save money tomorrow.