Your free tax calculator
When your business makes a profit, the last thing you feel like doing is paying tax on it. But you do have options to consider, and our free tax calculator is here to help you do that.
What’s so good about our tax calculator?
Well, we had a look around and realised there wasn’t a good tax calculator designed to help you make decisions. And since we want to help people understand their options, we wanted to fix that. We think our tax calculator is easy to use. And did we mention it’s free?
How does it work?
The tax calculator is based on the common business structure that we typically work with, which means there’s a company and also a family (or discretionary) trust that holds the founder’s shares in the company. We recommend this set up for a bunch of reasons, which you can read more about here.
With this set up, there are two main choices for your profits at tax time:
- Accept the profit, pay company tax and then issue the after-tax profits as dividends to your shareholders (if your family trust holds your shares, the trust can then distribute the dividends among its beneficiaries in a tax-efficient way)
- Decide whether to issue a bonus as an additional salary + super ‘top up’ for the year. This increases the expenses and reduces the company’s profits
Ultimately, your decision will depend on the individual tax positions of your company’s founders. And it’s not always about paying the least tax. There are plenty of personal considerations that affect tax decisions too.
Give me an example
Sure. Let’s talk about Bella (who’s married to Tom) and Barry (who’s in a de facto relationship with Maz). Bella and Barry are 60/40 shareholders in StartupCo. They each hold their shares in family trusts – the BT Trust and the BM Trust.
During the year, Bella and Barry each receive a salary of $100k (and pay tax on it throughout the year). Tom stays at home with the family and earns $18k through some handyman work. Maz is an employee as a part-time accounts officer earning $30k. StartupCo looks like it’s going to make a $100k profit for the year.
So what are their tax options?
Pay company tax (of $27.5k), and issue the after-tax profit as dividends to the BT and BM trusts. The BT Trust decides to give all its dividends to Tom, since he will pay a lower income tax rate on them through his personal tax return. The BM Trust decides to split the dividends 50/50 between Barry and Maz.
This means: The company pays $27.5k tax and the founders end up with:
As well as growing their business, Bella and Barry like the idea of increasing their superannuation for retirement if possible (invested into Australia’s startup friendly super fund, Spaceship, of course). So they want to understand what it would look like if they paid themselves the $100k profit as a 50/50 bonus less super (i.e. they pay themselves $45,662 each + 9.5% towards super).
This means: The company pays no tax and the founders end up with:
So yes, in this option the founders pay more tax than in option 1. But they each get an equal bonus, which might be important to them, plus who know what future returns they’ll get from their superannuation.
Bella and Baz could also do something in between options 1 and 2 of course, such as issuing 50% of the profit ($50k) in dividends and the other 50% as a bonus including super.
This means: The company pays $13,750 tax, and the founders end up with:
Take me to the tax calculator
We’d love to. You can download our free tax calculator here. It’s a spreadsheet that you can play around with.
We really do think it’s unique for the startup and small business community, and so is our tax partner Mike Budnow. He’s a tax expert, with all the blue-chip experience you’d expect from a big firm, except he loves startups so he works exclusively for startups and high growth businesses. Book a call with him if you want to discuss your tax situation – you could even send him your completed spreadsheet beforehand as a starting point for discussions.
In / around each End of Financial Year (EOFY) we also regularly run EOFY workshops, so keep an eye on our Events page for our popular (and free) end of financial year tax workshops in both Sydney and Melbourne.
And just before you go, we need to let you know that this blog post is general in nature. It’s not personal tax advice – please speak to Mike for that.
Image by Archaraporn Kamornboonyarush on pexels.com