Tax-Efficient Business Structures for Australians

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Tax-efficient structures to protect your income and your assets

I have a “love-hate’ relationship with the Australian media. I love them because my name has received quite a bit of press regarding the whole concept of minimizing tax and restructuring your tax burden. It’s helped quite a lot. But I hate them because of the way they negatively portray any form of tax-efficient business structures in Australia. 

Most journalists actually take an annoyed stance on the whole issue, claiming that it’s generally un-Australian to want to pay less tax. They assume that anybody who wants to pay less tax is necessarily doing something criminal and should be exposed for their “fraudulent” activities. 

In the most heinous example of this, the ABC reported that “an electrician from Perth emailed [an offshore tax service] asking what he could do to ‘reduce or zero my tax’”. 

Really? Is that newsworthy content? They then go on to say this:

While it is not unlawful for Australians to set up and own offshore companies, it can be an offence to fail to disclose those assets to the Australian Tax Office.

Technically true, but what these mongrels don’t report is that every year, the Tax Office is taking millions of Australians hard-earned money with most of that spent unwisely and without any regard for the people from which it came. I want to help individuals and companies find ways to create tax-efficient business structures that legally allow them to get what they want (pay less tax) and keep the government happy. 

The two ideas can harmoniously exist. It’s true. And I’ll show you how. 

Understanding Tax-Efficient Business Structures 

One of the best ways to minimize your tax is to create some separation between you and the money you earn. When treated as an individual, Australia’s ludicrous tax laws will demand at least 41% of your income every year if you are among the top earners in the country. 

I can’t change that. And I can’t step outside of the law for individuals to negate the amount of money they owe to the government. 

What I CAN do is structure the way you receive money so that instead of coming to you in your own name, it’s housed in a more tax-efficient structure. Businesses and individuals use tax structures in a legal method of creating separation and taking advantage of more favourable tax rates. 

“If you want to be successful, find someone who has achieved the results you want and copy what they do and you'll achieve the same results”

- Tony Robbins

My methods are learned directly by modelling what the super-rich in Australia are already doing. If you model their behaviour and tax structures, you can achieve the same result as them, slashing your income tax to almost nothing. 

Without going too in-depth, I’d like to cover a couple of the tax-efficient business structures I’ve used with my own high net-worth clients to slash their tax bill to almost nothing. Without fail, it’s almost universally a better way to save money and stop paying high taxes to our inefficient government.

Tax-Efficient Business Structure #1: The Trust

Simply put, the trust takes your money, puts it into the hands of the trustee and distributes the funds from the trust into the hands of beneficiaries (which could be you in the form of a company, which we’ll address in a second). 

What’s the benefit of doing this? Because not everybody is taxed at the same rate. $200,000 in your hands might be taxed at 46.5%, depending on your annual income, but by splitting up that amount among your family members, that same amount might only be taxed at 22% in the hands of your spouse or less with your kids. A trust is an entity that allows you to distribute funds to beneficiaries to maximize that tax saving.  

I love the discretionary trust as a tax-efficient business structure because it has quite a few benefits for you:

  • It costs very little. 
  • All income is taxed AFTER distribution, a key difference for tax saving
  • It protects the assets in the trust (think lawsuits and liability for the trustee)

If you make enough money to be taxed at the highest rate of 46.5% in Australia, you need to be careful of what something ACTUALLY costs you. What do I mean by that? Let’s say that if you want to be generous and gift your favourite charity or church $3000, you don’t have to just earn $3000 in order to do that. 

In truth, you actually need to earn $5600 just to have enough to give what you want. Because once you earn that $5600 and the government takes their greedy cut, you’re only left with $3000 and a vague sense of shame from the violation you just received. 

The money you spend comes out of your wallet after tax, meaning that for everything you buy, give, or spend, you had to earn 86% more just to afford it. 

The benefit of a discretionary family trust is that you can spend (distribute) your money BEFORE the taxman gets their hands on it.  If you’d like to give $3000 to the church, you can do so pre-tax and the church or charity is a beneficiary of your trust. 

If you make $500,000 a year under your name, your tax bill will be at least $232,000, leaving you with just over half of your money. If your company makes $500,000 a year, it’s complicated to get it out. You’ll attract higher capital gains taxes, Division 7A tax rates (nasty stuff, believe me), and it’s often stuck in the company. 

The family trust, in comparison, is straightforward and simple to manage.

  • You have the discretion to distribute how you choose. 
  • You can easily move money out to where you want it to go.
  • You can take advantage of lower tax rates in your beneficiaries

It’s the most effective structure you have at your disposal. 

Tax-Efficient Business Structure #2: The Company 

When we talk about separation, this is the main reason we use a company for tax purposes. Not only will you get preferential tax treatment but you also have a separate entity that protects you from lawsuits and protects your assets.

Personally, I believe that establishing a holding company as a beneficiary as well as creating a Proprietary Limited company to act as a trustee goes one step further in the process. Let’s quickly cover the three main reasons you’re likely to consider using a company in your tax reduction plan.  

One of the downsides to having a trust is that it can’t accumulate wealth without attracting high taxes. But a bucket company can accumulate wealth and minimize your tax rates. Let’s meet Harold, who makes $600,000 a year, all into his trust that we just talked about. If he leaves it there, it will attract a 48.5% tax rate, or $291,000. If he distributes that income into a bucket company, his tax rates are lowered to just 30%, reducing his tax bill by $111,000.  

Secondly, the company is a great trustee for a family trust, especially if you’re looking to protect your assets. Harold is met with a frivolous lawsuit that could threaten the 10+ years of investments and assets he’s built up. Harold’s clever thinking established a Pty Ltd bucket company as trustee, and his wife Joanne, acting as the Appointor, can sack the bucket company as trustee if the risk of the lawsuit is too great. 

Using a company as a wall to protect your assets is a model proven by the super-wealthy elite 

This firewall of protection with a bucket company meant that Harold and Joanne save hundreds of thousands of dollars in taxes as well as millions in assets.

Lastly, the only other time I recommend setting up a company is if we need to bring aboard partners. And that’s pretty much it.    

I don’t often advise starting a company as a tax structure on its own because of those high capital gains tax rates and Division 7A loan issues, but when used with a discretionary family trust, it can legally cut your tax bill enormously.

  • The bucket company can minimize tax rates better than a trust
  • It enables you to protect assets by acting as a trustee for your trust
  • If you want, you can bring in partners into the company.

Tax-Efficient Business Structure #3: Superannuation

I want to be careful as we are not licensed professionals in dealing with superannuation. We can only give general educational discussion on this topic. We have our concerns. As you probably know, the government is cracking down on super right now. It’s volatile and I can’t predict how it will end up. It makes me wary and nervous, and in fact, I’m only throwing this in for awareness.

Although many will claim that a Self-Managed Super Fund is the best way to go, you should really seek professional advice. Although we don't handle this service ourselves, reach out to us and we can guide you to the appropriate professionals.

Will that change in the future? It’s likely. As history tells us, whenever a bank needs bailing out or a country gets into strife, the first big pot of money that the government pulls out of is the retirement savings, namely your superannuation. Keep that in mind. 

Creative Tax Strategies For You

After 10 years of working as one of the bad guys in the ATO tax auditor office, I’m passionate about copying the strategies of the rich and elite to slash your tax to almost nothing. I use legal tax-efficient business structures so that you can pay close to $0 in tax. The more money you make, the easier it gets to slash your tax. 

Want to talk about setting up tax structures here in Australia? Or how about offshore foundations and structures? Or if you’ve truly had enough, we can advise you on becoming a non-resident of Australia, living here less than 6 months out of the year, and legally slashing your tax bill to nothing. It’s much easier than you think, and we can help.

If you’d like to discuss the right tax strategy for you, here or offshore, you’ve found the right place. Contact us today to schedule an assessment and free strategy session tailor-made just for you.