Are You Paying Too Much Tax?

In this episode Lee and Mai take a deep dive into tax planning, business structures, and the smart (and legal) ways business owners can reduce tax, improve cash flow, and build long‑term wealth.

Following the strong response to last week’s Payday Super episode, this conversation tackles one of the most common questions business owners ask: “Am I paying too much tax?”

The answer, as Mai explains, is often yes — but not because the system is broken. It’s usually because the structure or strategy isn’t right.

In this episode, Mai talks about:

• What tax planning is and why it matters
• How to legally reduce tax and improve cash flow
• Common mistakes business owners make when paying themselves
• What you can (and can’t) claim when working from home
• How company tax, dividends, and franking credits work
• The role of trusts and bucket companies in tax and asset protection
• Why the right business structure can change your financial future

You can't know what you don't know. This could be the conversation that changes everything.

Learn more about My Accounting Advantage

Transcript

Welcome And The Big Tax Question

Speaker 0:04

Hello and welcome back to the podcast My Accounting Advantage featuring Mai Harris. Mai, welcome back to the program and thank you for being here.

Speaker 1 0:14

Thank you, Lee. Nice to be back.

What Tax Planning Actually Does

Speaker 0:16

Now, last week we did the Payday Super. Pay Super on the day, and there was a huge response to that of people just in shock that these things are happening. Well, today we're gonna take a different approach and we're looking at the tax planning. And I just want you to answer a simple question for our audience. Am I paying too much tax?

Goals, Family, And PSI Limits

Speaker 1 0:39

You could be. So basically, tax planning is about the exercise that your advisor will do for you. It can be done one of two ways. So, number one, it can be done on an annual basis, and that they will provide you with a projected tax payable and then provide you with a strategy on how to reduce the amount of tax that you will be paying and also guide you through how to implement that strategy. So another time also is you can do it all through the years. So it depends on, you know, what big things are you planning to do. If you're planning to restructure or you're planning to make a big investment, you should also tax plan and to see whether or not the decision that you're going to make will affect your tax position. And that's what we call tax planning.

Speaker 1:42

Our audience listening now, we've got the small business owner, and then we've got the self-employed, grey concrete, art, working people that work by themselves. What can they do to take advantage of this?

Speaker 1 1:57

Number one is we have a look at your goals and what your financial goals personally and also business goals. This way we understand what path you need to go through in order to achieve that. And then we have a look at your family dynamics, whether or not you have someone that you can distribute income to. So in that case, you know, if you have three children and at the age of over 18, and we can actually distribute to them, there's a lot of tax advantages there. But there are a lot of rules and regulations that you also have to comply. Number one is your PSI rules. And then also whether or not your children are residing with you, are they your dependent? If you they are independent on their own, they're not living with you, well, that changes things as well.

Speaker 3:02

What does that change?

Speaker 1 3:04

Basically, the tax law prevents you from directly distribute to your grown-up children. If they live their own lives and they earn their earn their own money, then when you distribute to them, then that's just purely for tax advantage. So you need to step carefully on how you structure basically your trust or your trading entity.

Home Office Claims And CGT Traps

Speaker 3:31

Yeah, that part of it. There's a lot to that there, Mai. That's where people definitely need to reach out, get an assessment done, and get guiding. What else can we do with tax planning to best position ourselves? So, for example, I know some people work from home and they do part of their mortgage against that, which is not always the best way to do it, because there's complications with that.

Speaker 1 3:53

Well, I actually wanted to correct that one. If you are working from home and you're not actually opening your home as, you know, public office with a separate entry, generally you cannot claim tax deduction on the interest of your mortgage or the cost of running the household because that's unfortunately not the thing that you can do. What you can do if you convert part of your house into a proper office where you see clients and also have separate entry, you can claim the part of the interest on your mortgage. But you've got to be aware that when you sell the house, there will be capital gains tax implications that attached to that sale.

Immediate Write-Offs For Gear

Speaker 4:50

My home has been reconfigured into a business, and you being my accountant, uh, gave me some great advice because I thought I was gonna do that, and you said don't charge yourself rent, but you can do the fit out. And we did quite an extensive recording studio fit out here. If I was audited, they'd walk in and go, Wow, uh, you know, I'm not in a bedroom working or something. It's that's right, you know, a full studio. But the fit out of that studio, that's all part of my tools of trade.

Speaker 1 5:18

That's correct. Yes, that is part of your tools of trade. So with the tools of trades, it depends on the value. It's under $300, depends on your turnover as well. But most of the businesses that I advise, there's, small and medium. So you can claim the $300 and below expenses straight away. And also if the equipment or, you know, the asset that you purchase, if it costs less than $20,000, you can actually enjoy the immediate write-off on that too. So you don't even need to depreciate it if it's under $20,000. You just claim a whole lot.

Speaker 6:00

This is so important. And just to back up what you were saying about the property that I have has separate entrances to the work area. I didn't know you had to have that, but it's a good thing to bring up for those people that are about to reconfigure their home. And it it's it's actually quite a smart way to work because in my instance, we had a big home where the kids had moved out, so reconfiguring was better than go and renting commercial space somewhere else, and I get the convenience of being here. What else can our small business owners learn about understanding tax to their advantage in this tax planning?

Speaker 1 6:35

Okay, so there's a lot of things that you can do. If you were to operate as a company, you can understand that you pay tax at 25%. So you should pay yourself whatever you need. You know, you pay PAYG, PAYG withholding on that income. That's fine. However, if you have been paying taxes for years and years and you feel that, oh, okay, the PAYG withholding is making a bit of a chunk out of my cash flow, what you can opt to do is you can opt to pay yourself dividends instead of wages, which means that you can utilize, you know, the franking credits. I'm talking about too technical here, but anyway, I'll just keep going. So the franking credits, which are the prepaid tax, which will help you pay yourself whilst not feeling the full impact of the PAYG withholding, because we're utilizing the prepaid tax credits that you already paid for. This means you can take the cash out of the business without having to worry about paying PAYG withholding, which is tax on your wage. So that will help you with your cash flow.

Speaker 7:57

This is such an important point. And for any small business owner, if you've been employed, you get paid. And then suddenly you're now working for yourself and you think, but I've got to get paid. But there's ways of getting paid and ways of and hence this program even exists that people could listen to that one thing and think, I'm paying myself wrong. I could there's another legal, normal way to do it, and as a company, that is why you set up as a company.

Speaker 1 8:23

Yeah, that's right. And an another thing too, you know, when you pay taxes in the company, some people really worry that they pay too much tax. I wanted to say that it's not a bad thing because the 25% tax fix rate that you're paying, it's actually a pretty good rate. Because a lot of people, when on an individual basis, the average taxes are around um 30 to 35%. So 25%, that's to me, that's a discounted tax rate. So and then on top of that, when you pay company tax, you keep that tax credits for paying dividends down the road. So the money that you pay yourself and you classify it as a dividend comes with prepay tax, which means that you may not have to pay top-up tax at all.

Speaker 9:25

Mai, you've got everyone's attention here. What other structures are available for trading entities?

Bucket Companies For Asset Protection

Speaker 1 9:32

There are about four types of trading structures here. Number one is company, which a lot of people are familiar with. And I I also advise on, you know, trading family trust. And what does family trust do? So family trust is very similar in terms of limited liability as a company, as long as you have a trustee company and you can trade through family trust, not a problem. But when you distribute income, it needs to go to your family member. So this can be quite handy if you are a family business. So you can distribute income to them in compensation for them doing the work and instead of paying wages, you can do that as well. So just wanted to tell you though, that um family trusts do not pay tax. So whatever it earns and the profit that it makes, at the end of the financial year, it gets distributed. But you have choices who it gets distributed to. So that will be quite a tax advantage to a lot of people. And the third one is you can also have a bucket company. A lot of people talk about bucket companies, and I get this question all the time. Is it legal? Yes, it is. So what does the bucket company do and why do we set it up? Uh, bucket company is typically used when you want to isolate your profit to another entity for well, income protection purposes and also asset protection purposes. So typically when you have a trading company and it might be slightly high risk, so there opportunities maybe if there's litigate litigation or um, you know, you you just want to be safe, you can actually pay dividends from your company, your trading company, over to the bucket company. Um, and then you transfer cash over. So your cash is safe. And you can use those cash that you transfer over to the bucket company to invest. So basically that's just to safeguard your assets, your cash. The benefit of paying tax in the bucket company, the bucket company's tax rate is 30%, okay, because it's a it's getting passive income source, so not 25. If you're a trading company, you pay tax at 25. And if for a typical bucket company, the tax rate is 30. So you just top up 5% more, but you're really securing your cash and your assets elsewhere. And you can also use it as an investment vehicle.

Speaker 12:56

So when you say an investment vehicle, let's say someone set up their bucket company, they put some money in there, the bucket company can get a loan to buy a property?

Speaker 1 13:06

It can. It certainly can. So it can accum you can accumulate your assets there and paying tax at 30%. And your assets will be protected as well. So it it's it's a good structure from for someone who don't need to use the cash immediately. They can park it somewhere, like the bucket company, to help them build their wealth. The the benefit is they can get access to the cash from the bucket company at any time.

Speaker 13:44

When you say you can get access to the cash, is in you can withdraw money out of that company at any time?

Access To Cash Compared With Super

Review Your Structure And Next Steps

Speaker 1 13:49

Yes, you can. Subject to, you know, the the law where you are you withdrawing money out of the bucket company via dividend, or how do you do that? So there's, you know, a couple of ways to classify your withdrawals, but you can have access to it. When you compare, you know, investing in your self-managed superfund, for example, you can't access that cash or that assets. We can't do anything with the cash until you actually retired or you hit the age of 60. So the bucket company can be a good investment vehicle and build your wealth. If you have excess cash or your your own personal cash, you can put it in there. And then when you need it, after you're investing for quite some time, you can withdraw that money out.

Speaker 14:46

What an incredible podcast today. They've all been good, but today has been very, very interesting. And probably for anyone listening to this program right now, I consider myself quite knowledgeable of business. I had no idea about a bucket company till you set one up for me. And just learning all this is just amazing. I wish I knew about it earlier, but I met you only a couple of years ago, and we weren't in a position to do it till then. But anyone listening to this audio right now, reach out and are you paying enough tax? Well, you're not paying enough tax, is the question in the show today. But Mai any final comments on the wrap-up of today's program?

Speaker 1 15:29

Yes. The final comment will be that if you feel that you need to review your business structure and whether or not your structure's doing the thing that you want it to do, is it working for you? You need to reach out to someone to review it because that can really change the course of your business and the course of your wealth.

Speaker 15:56

Mai Harris, thank you for joining us. Your welcome. And if you need to get in contact with Mai and her team at My Accounting Advantage, the website link is in your show notes. myaccountingadvantage.com.au. Thank you for listening.