P r a c t i c e U p d a t e December 2023

5 December 2023

Stage 3 Tax Cuts

The Federal government has reaffirmed its commitment to the so-called Stage 3 Tax Cuts. By way of background, the previous government legislated these tax cuts. They will abolish the current 37 per cent tax bracket, lower the existing 32.5 per cent bracket to 30 per cent, and raise the threshold for the top tax bracket from $180,001 to $200,001. You can see what that means by looking at the table below.

It shows how the personal income tax rates and thresholds will change in the 2024-25 financial year.

Tax RateCurrent 2023/24 ThresholdsTax RateNew thresholds from 1 July 2024


Nil         Up to $18,200                  Nil             Up to $18,200

19%       $18,201-$45,000              19%            $18,201 – $45,000

32.5%    $45,001-$120,000           30%           $45,000 to $200,000

37%       $120,001-180,000

45%       $180,001 and over         45%.          $200,001 and over


The result will be that the first $18,200 you earn will be tax-free (as it is currently), and every dollar you earn between that and $45,000 will be taxed at 19% (as it is presently). But then things change.

From July 1, 2024, every taxable dollar you earn from $45,001 to $200,000 will be taxed at 30%, and every dollar you earn above $200,000 will be taxed at 45%. That’s very different from what currently happens.

On the face of it, lowering the 32.5% bracket to 30% and removing the 37% tax bracket altogether seems like a big win for middle and upper-middle-income earners. But it will be a much bigger win for higher-income earners in dollar terms.

Please reach out to us when these cuts begin in July next year to figure out your tax position.

Advantages of company structure

There are many advantages of operating your business via a company structure, including:

  • Liability for shareholders is limited.
  • It’s easy to transfer ownership by selling shares to another party.
  • The company can employ shareholders (often family members).
  • The company can trade anywhere in Australia.
  • Taxation rates can be more favourable.
  • You’ll have access to a broader capital and skills base.
  • Reduced personal responsibility for any business debts incurred.
  • Legal liability also becomes reduced since a company is a separate legal entity from you as an individual.
  • Company tax rates are lower compared to higher marginal tax rates.
  • It can be much easier to raise finance and capital to grow and expand your business.

 

Director Liability

Chief among the advantages of company structure benefit these is asset protection. Broadly speaking, company owners are protected from creditors if their company fails. However, there are two notable exceptions!

The first of these is where a director offers a personal guarantee. Companies often require financial support to secure loans, leases, or credit facilities to foster growth and development in the dynamic business world. To assure lenders or creditors, directors of companies in Australia may be asked to offer personal guarantees. These guarantees, known as “Directors’ Guarantees”, play a crucial role in ensuring that the obligations of a company are met.

Such guarantees are essential for three reasons:

  • Access to Funding: By providing a personal guarantee, directors can help their companies access financing that might otherwise be difficult to obtain, especially for new businesses.
  • Credibility: A director’s willingness to guarantee a company’s obligations can enhance the company’s credibility and trustworthiness in the eyes of creditors and prospective business partners.
  • Risk Mitigation: For creditors, a Directors’ Guarantee serves as a safety net, ensuring that someone personally takes responsibility for the company’s obligations, reducing the risk of financial loss.

Directors should know that providing a Directors’ Guarantee carries significant personal risk. If the company defaults on its obligations and the director cannot cover the debt, its personal assets may be at risk. Along with director guarantees, owners of companies may also be personally liable under the director penalty notice regime.

As a company director, you become personally liable for your company’s unpaid amounts of:

  • Pay as-you-go withholding (PAYGW)
  • Gods and services tax (GST)
  • Super guarantee charge (SGC).

These amounts that you are personally liable for are called director penalties. The ATO can recover the penalty amounts once they issue a director penalty notice. To be clear, a director is responsible for ensuring the company meets its PAYGW, net GST and SGC obligations in full by the due date.

If these obligations are not met, directors become personally liable for director penalties unless they take steps to ensure the company lodges and pays its:

  • PAYGW by the due date,
  • Net GST (as well as Luxury Car Tax and Wine Equalisation Tax amounts) by the due date and
  • Superannuation guarantee (SG) to employees’ superannuation funds by the due date – if that doesn’t occur, the company must lodge a superannuation guarantee statement and pay the resulting SGC liability.

Talk to us if you are still determining your director’s liabilities.

 

Business Plan

The upcoming Christmas break is an opportune time to review a business plan.

A business plan can be used to:

  • help you start a new business.
  • help you improve the performance of an existing business.
  • attract funding for an investment.
  • communicate business progress to stakeholders.
  • communicate business goals and objectives to internal staff members.
  • attract potential buyers for the business.

A business plan is a ‘living’ document, so it should evolve and change—think of it an operating guide for your business throughout the start-up, operations and succession phases.

The elements of a business plan will vary depending on:

  • phase of the business is in (starting, running, selling).
  • the industry a business is in.
  • the use of the plan (e.g. for internal development purposes).

Every business plan will be different but generally include the elements below.

  1. Executive summary

This section provides an overview of the business concept. It should be attention-grabbing and concise—the content will be covered in more detail in future sections. While this is the first section of the plan, it can often help to write it last after the other sections have been finalised. This helps to ensure that the executive summary covers all the key information within the plan. It should define:

  • business vision
  • legal structure
  • products and services
  • customers
  • competitors
  • market and products or services
  • operation
  • financial projections
  • evolution of the business and the industry
  • structure of the business
  • short-term and long-term goals
  1. Product, service and market analysis

In this section, you should highlight your business products and services and describe what makes them unique, such as their:

  • features
  • benefits
  • limitations
  • cost and sale price.

You can also include details of any business plans to introduce new products and services. Your market analysis should describe your target market (e.g., local, international) and target customers. Add in the research you have done about your industry and the market trends. In this section, you will also complete a SWOT analysis (strengths, weaknesses, opportunities, threats).

  1. Sales

Explain your sales forecasts and targets in this section and how you will manage customer records and payments—understanding what sales strategies will work for you and the best channels to market your products or services. You will also need to know your current sales, volume and market share and what you expect them to be for the coming year. You should also identify your break-even point – the sales volume required to keep the doors open.

  1. Operating plan

This section will cover all you know about how you do things in your business—for example, your standard operating procedures and how to ensure the quality of your products and services.

  1. Financial plan

Summarise your key financial details, including:

  • costs for establishing or operating the business.
  • sales needed to break even.
  • projected cash flow.
  • funding arrangements.
  • payment plans.
  1. Action plan

The final section of the business plan should include a set of actions to take before you review your business plan and check your progress. This should be over 6–12 months, based on the business goals outlined in your plan.

Set a regular review date for the actions and the business plan. Assess which actions have been completed, which remain outstanding, and require updating to help your business plan remain relevant.

  1. Review

As noted, the Christmas break is an excellent time to review your business plan to ensure that it’s relevant, achievable and up to date with any changes in your business.

To help you review your plan, ask yourself the following questions:

  • What will the review schedule be?
  • Is the plan up to date?
  • Have the business goals changed?
  • Does the plan still match the business goals?
  • Are market trends changing?
  • Have significant political, environmental, social or technological changes affected your business?
  • Have there been significant changes in your finances or need for capital?

 

Benchmarking your business

Have you benchmarked the performance of your business?

The ATO provides a high-level benchmark tool for business owners to compare their company’s performance to a broader range of similar businesses. There are essentially three purposes behind the ATO Small Business Benchmark Tool. These are:

  1. encourage business owners to perform annual health checks to see if their costs are above or below their peers.
  2. enable businesses to assess whether any discrepancies may be flagged for an audit by the ATO and
  3. to alert the ATO to investigate businesses outside the benchmarking norm.

Financial benchmarking has been a valuable tool for businesses across various industries for decades, as it is an effective way of identifying issues and facilitating sound business decisions.

The ATO says: “When we see a business significantly outside the key benchmark range for their industry, it doesn’t necessarily mean you have done anything wrong. But it indicates something unusual and may prompt us to contact you for further information”.

In conclusion, the ATO Benchmark Tool is a valuable resource for small businesses to see how you’re tracking against businesses of a similar type. Access the benchmarks on the ATO website and contact us if you have any questions.


Practice Update April 2025

31 March 2025
A foreign entrepreneur’s guide to starting a business in Australia Starting a business as a foreign entrepreneur can be an exhilarating way to access new markets, diversify investment portfolios, and create fresh opportunities. Many countries around the globe provide pathways for non-residents and foreign nationals to register businesses. However, understanding different countries’ legal requirements, procedures, and opportunities is crucial for success. In this issue, we will navigate the process of establishing a business in Australia to help foreign entrepreneurs looking to register a company in Australia. Key takeaways Foreign entrepreneurs can fully own Australian businesses with no restrictions on ownership. Registered office and resident director requirements are key legal considerations. ABN and ACN are essential for business registration. The application process can be done online, simplifying the process for foreign entrepreneurs. Why register a business as a foreign entrepreneur? There are various reasons why a foreigner may want to register a company in another country. These reasons include expanding into a foreign market, taking advantage of favourable tax laws, leveraging local resources, or benefiting from business-friendly regulatory environments. Before registering, conducting thorough market research to assess whether establishing a business abroad aligns with your objectives is essential. Understanding the country’s political and economic climate, legal framework, and tax system will help ensure the success of your venture. The general process for registering a business as a foreign entrepreneur While the exact requirements may differ from country to country, some common steps apply to most jurisdictions when registering a company as a foreign entrepreneur: Choosing the business structure The first step is deciding on the appropriate business structure. The structure determines liability, taxation, and governance. Common types of business structure include: Sole proprietorship: A single-owner business where the entrepreneur has complete control and entire liability. Limited Liability Company (LLC): Offers liability protection to the owners, meaning their assets are not at risk. Corporation (Inc.): A more complex structure that can issue shares and offers limited liability to its shareholders. Different countries have varying rules regarding foreign ownership, so understanding the options available is essential before registering a company. Registering with local authorities Regardless of the jurisdiction, most countries require you to register your company with the relevant local authorities. This process typically includes submitting documents such as: Company name and business activities: You need to choose a unique company name that adheres to local naming regulations. Articles of incorporation: This document outlines the company’s structure, activities, and bylaws. Proof of identity : As a foreign entrepreneur, you will likely need to provide a passport and other identification documents. Proof of address: Many countries require a physical address for the business, which may be the address of a registered agent or office. Tax Identification Number (TIN) and bank accounts After registering the company, you will typically need to apply for a tax identification number (TIN), employer identification number (EIN), or equivalent, depending on the jurisdiction. This number is used for tax filing and reporting purposes. Opening a business bank account is another critical step. Some countries require a local bank account for business transactions, and you may need to visit the bank in person or appoint a local representative to help with the process. Complying with local regulations Depending on the type of business, specific licenses and permits may be required to operate legally. For example, food service, healthcare, or transportation companies may need specific licenses. Compliance with local labour laws and intellectual property protections may also be necessary. Appoint directors and shareholders To register a company, you’ll need to appoint at least one director who resides in Australia. The director will be responsible for ensuring the company meets its legal obligations. You will also need to appoint shareholders, who can be either individuals or corporations. For foreign entrepreneurs, the requirement for a resident director is one of the key challenges. If you don’t have a trusted individual in Australia to act as the director, you can engage a professional service to fulfil this role. This ensures your business remains compliant with local regulations. Choose a company name Next, you need to choose a company name. The name should reflect your business but must be unique and available for registration. You can check the availability of a name through the Australian Securities & Investments Commission (ASIC) website. Remember that the name must meet legal requirements and cannot be similar to an existing registered company. If you’re unsure, seeking professional advice is always a good move. Apply for an Australian Business Number (ABN) and Australian Company Number (ACN) Once you’ve selected your business structure and appointed your directors, it’s time to apply for an Australian Business Number (ABN) and an Australian Company Number (ACN). These are essential for running your business in Australia. ABN: This unique 11-digit number allows your business to interact with the Australian Taxation Office (ATO) and other government agencies. ACN: This 9-digit number is allocated to your company upon registration with ASIC and serves as your business’s unique identifier. You can easily apply for both numbers online through the Australian Business Register (ABR) and the ASIC websites. Register for Goods and Services Tax (GST) If your business expects to earn more than $75,000 in revenue annually, you must register for GST. This means your business will charge customers an additional 10% on goods and services. The GST registration threshold for non-profit organisations is higher at $150,000 annually. If your company is below these thresholds, registering for GST is optional, but registration becomes mandatory once it exceeds the limit. Set up a registered office Every Australian company must have a registered office in Australia. This is where all official government documents, including legal notices, are sent. You can use your premises or hire a foreign company registration service to provide a virtual office address. Common challenges for foreign entrepreneurs While the process is relatively simple, there are a few hurdles that foreign entrepreneurs may encounter when registering a company in Australia: Resident director requirement: You’ll need a director residing in Australia. If you don’t have one, you’ll need to engage a service provider to fulfil this role. Understanding local tax laws: Australia has a corporate tax rate of 25% for small businesses with annual turnovers of less than $50 million. However, larger companies with turnovers exceeding $50 million are subject to a standard corporate tax rate of 30%. Foreign entrepreneurs must also understand the implications of the Goods and Services Tax (GST) and payroll tax. Compliance with Australian regulations: Navigating Australia’s various regulations and compliance requirements can be time-consuming. An accountant or adviser can help you in this regard. FAQs Can I register a company in Australia as a foreigner? Yes, foreign entrepreneurs can register a company in Australia. The only requirement is to have a resident director. Do I need to be in Australia to register a company? No, you can complete the registration process online. However, you must appoint a resident director. Do I need an Australian bank account to start a business in Australia? You will need an Australian bank account to handle your business’s finances and transactions. Can I operate my Australian company from abroad? Yes, you can operate your company remotely, but you must comply with all local tax laws and regulations.

Practice Update March 2025

5 March 2025
Do bucket companies help build wealth at retirement? Bucket companies are familiar with wealth-building strategies, particularly as individuals approach retirement. By distributing profits to a bucket company, individuals can benefit from reduced tax liabilities and enhanced investment growth opportunities. This essay explores how bucket companies influence wealth building at retirement, their impact on age pension eligibility and tax positions, and strategies to maximise economic outcomes. Understanding bucket companies A bucket company is used to receive distributions from a family trust. Instead of distributing profits directly to individuals, which may attract high marginal tax rates, the trust distributes income to the bucket company, which is taxed at the corporate tax rate (currently 30% or 25% for base rate entities). The company can then retain the after-tax profits for reinvestment or distribution. Impact on wealth building at retirement Tax efficiency and compounding growth Using a bucket company can result in significant tax savings compared to personal marginal tax rates, reaching up to 47% (including the Medicare levy). Retained earnings within the bucket company are taxed lower, allowing more capital to compound over time. Example of Tax Efficiency: Income DistributedPersonal Marginal Tax (47%)Bucket Company Tax (25%)Savings $100,000$47,000$25,000$22,000 Over 20 years, if the tax savings of $22,000 per year are reinvested at an annual return of 7%, they would accumulate to approximately $1,012,000. Age pension and means testing The age pension is subject to both an income test and an assets test. Holding wealth in a bucket company can impact these tests: Income Test: Distributions to individuals count as assessable income. Retained profits within the company do not. Assets Test: The value of the bucket company shares is counted as an asset, which may affect pension eligibility. Strategic use of the company can help individuals control their assessable income, potentially increasing their age pension entitlement. Strategies to maximise economic outcomes Timing of Distributions By deferring distributions from the bucket company until retirement, individuals can benefit from lower marginal tax rates or effectively use franking credits. Dividend Streaming Using franking credits from company-paid tax can reduce personal tax liabilities when distributed dividends. Investment within the Company Reinvesting retained earnings within the bucket company in diversified assets can enhance compounding returns. Family Trust Distribution Planning Strategically distributing income to lower-income family members before reaching the bucket company can reduce overall tax. Winding Up or Selling the Company Carefully planning an exit strategy to wind up the b ucket company or sell its assets can minimise capital gains tax liabilities. Example of a retirement strategy with a bucket company Assume that John and Mary, aged 65, have distributed $100,000 annually from their family trust to their bucket company over 20 years. Corporate tax paid: 25% Annual return on reinvestment: 7% After-tax reinvested earnings annually: $75,000 YearAnnual ReinvestmentTotal Accumulated Amount (7% p.a.)5$75,000$435,30010$75,000$1,068,91420$75,000$3,867,854 At retirement, they can distribute dividends with franking credits to minimise personal tax and supplement their income while potentially qualifying for some age pension benefits due to strategic income timing. FAQ What is a bucket company? A bucket company is a corporate entity that receives trust distributions, taxed at the corporate rate rather than personal marginal rates. How does a bucket company impact my age pension eligibility? While retained earnings do not affect the income test, the value of the company shares is considered an asset under the assets test. Can bucket companies help reduce tax during retirement? Yes, by using franking credits and strategic distribution timing, bucket companies can minimise tax liabilities. Are there risks associated with using bucket companies for retirement planning? Yes, risks include changes in tax laws, corporate compliance costs, and potential capital gains tax upon winding up the company. Should I consult a professional before using a bucket company? Absolutely. Professional advice is essential to ensure compliance with tax laws and optimise wealth-building strategies.

Personal super contribution and deductions

11 February 2025
Personal super contribution and deductions
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