Dear Aunty B,
I love business. I can cope with the paperwork, I can cope with handling difficult staff and I accept that I have to pay a wide range of taxes.
But some taxes are just ridiculous – like payroll tax.
Paying a tax on employment, when the person you are going to employ is about to start paying a load of taxes, is an outrage.
How do I reduce my massive tax bill, which is sending us broke? (And Aunty B, are there any safe ways to avoid tax?)
Coffs Harbour NSW
You don’t pay tax in jail. You’ll be pretty safe there from the pursuit of the tax man. In fact you would have to call jail the last safe tax haven on earth.
Look Kev, you can complain about tax, lobby your industry group to lobby on your behalf, and moan all you like to anyone who will listen. You could read up on tax rates in other countries, choose the cheapest and pack a suitcase.
But otherwise, you are nuts to even think about avoiding tax.
The tax office has more tools than ever at their disposal.
They know if you sell a property, they know if you receive overseas payments, they know, Kev, that you are going to pay them a pile of money this year and they will want to know if you don’t.
How do they know?
As our tax expert Terry Hayes says that the tax office now regularly conducts data-matching exercises with all sorts of agencies, federal and state, including state land titles offices and property title transfers from many state and territory authorities. It then tailors its response to the level of risk and the compliance history of each business.
If you don’t pay your taxes, you will be contacted by the tax office – maybe in the middle of dinner! You may then be hit with penalties and prosecuted.
Is it worth avoiding tax for that?
But you certainly do not want to be paying more than you have to. Are you claiming all your tax deductions? Every business is different but here is a list to consider:
- Salary and wages and bonuses paid to employees.
- FBT on fringe benefits paid is deductible.
- Staff recruitment costs (advertising, agency fees).
- The cost of drawing up employment agreements.
- Superannuation contributions.
- Workers compensation insurance.
- Rent or lease costs of business premises (the rent itself, lease document preparation costs, etc).
- Bank fees and charges on business bank accounts.
- Bad debts (must actually be written off as bad).
- Borrowing expenses, for example interest on funds borrowed that are used in the carrying on of the business, legal expenses, registration fees. Note that this year-by-year test allows for changes in the use of the borrowed funds.
- The cost of trading stock, including freight, taxes and insurance.
- Licence fees.
- Motor vehicle expenses.
- Lease of equipment or plant.
- Depreciation of assets of the business. This can include the businesses’ buildings themselves.
- Power costs.
- The cost of promotional giveaways.
- Gifts and donations to the value of $2 or more – this can include gifts of things like property (including trading stock) bought by the business during the 12 months before the gift was made.
- Transport and freight expenses.
- Fees of a registered tax agent.
- Cost of attending conferences related to the activities of the business.
- Payroll tax and land tax on business premises.
If you can’t pay your tax, act now. Talk to the tax office.
My last piece of advice? If you can’t pay your taxes, your business is not viable. So ask why?
Make that your new focus, not your taxes.
Your Aunty B