The three key areas of tax (and yes, we know there are others)
Your income – a salary paid to you by your company.
Transactional tax – this is GST and PAYG in the form of the BAS that is reported monthly or quarterly
And what’s left over tax, which is in a company it’s the company tax, and this is where in operating an Australian Business you should plan never to pay any tax, or too much tax. It’s from here that you should have a decent plan to minimise the tax. This is all the left-over money after you have run your business, paid yourself a salary and are on top of BAS.
So let’s break down the three areas for you clearly.
Your income tax
Your income – your salary – what you formally pay yourself as a salary or wage earner in your company.
We have some bad news.
But you probably have this figured out. There is no way around this, what you take for yourself you will need to pay tax on always – but this can also give you peace of mind, the business gives you a great salary, you have a group certificate, and your person tax is paid every week.
This is a question too difficult for a mathematician. It should be asked of a philosopher (when asked about completing his income tax form) ― Albert Einstein
BAS – The tax that doesn’t sleep, the transactional tax and how to manage it
You can’t tax business. Business doesn’t pay taxes. It collects taxes. ― Ronald Reagan
The standard thing for businesses is that they operate for 3 months, and then whammy, they have to pay BAS and the scramble for funds to pay BAS. Here’s what to do, “pay BAS weekly”. Tame this debt, get rid of it as your business trades. You can pay the taxman any time, so why not pay BAS weekly or as a percentage of what you bank. It’s not hard to calculate what BAS and payroll is and pay it weekly. (Or we can help) By the time you come to reporting your BAS you have already paid it. Pay the ATO directly via BPay. Put the money in your redraw on you mortgage – we recommend that you just pay the taxman, then it’s gone.
With your tax paid through PAYG and the BAS paid, then you can really see the business financial performance. You have created a new way that you can review your business and make the improvements. If you have paid these taxes and there is nothing left over, improve the business.
Getting hold of BAS and ringing it around its neck, means that you also take hold of all your business. And now what’s left tax – In Australian Business this is the company tax, and the game here is to not pay tax at all or reduce it as much as you can.
Let’s go back and think about what we have covered. If you are an Australian Business owner, then above we have covered the money you need to live and enjoy life with your family and this is simply income tax and – your tax. We have covered paying the BAS (tax that never sleeps) by paying it at least weekly or when you bank money and also by taking more control of costs and charges.
What’s left is reflected as company profit.
This is the reason you went into business, to make extra profit. To have a way of creating wealth, managing retirement or leaving it for the kids. If you don’t plan, then you pay too much tax.
Then now you can do what rich folk do and plan wealth.
Within the complexity of all the tax law, for most Australian Businesses Owners, who aren’t looking for a scam (and most tax law is about stopping scams) but wanting a great reward for their hard work and understanding the nature of tax, will lead to planning with the known cash profit of the company.
What you do
Your salary and income tax
This is the income you will take when operating your business. It means that in your business you treat yourself and an employee, with PAYG and superannuation paid every week.
No big whammy tax for you at the end of the year where you tax more money from the business to pay the tax, which creates more tax because you took money to pay tax. You have your personal tax sorted out and it’s only the tax in the company that needs dealing with.
BAS (transactional tax, the tax that never sleeps)
Plan to pay weekly or as you bank money so that when you report monthly or quarterly the tax is already paid.
You have a smoother cash flow You know where you are with cash in the business and can make small changes often to improve your business. You see what is left and if the business doesn’t need the cash to operate it becomes company profit and you plan.
Normally this is calculated at the end of the year, but in our plan you understand, if you have it pay every week or month.
You plan to not pay tax, or pay as little as often, as you understand this tax, you work so that you and not Canberra benefit from your hard work.
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