Where Is All The Money Going Series: Chapter 5 - Tax Isn't The Problem, Being Surprised By It Is
Written by: Melissa Cunliffe (CA)
For many family business owners, tax is one of the most frustrating parts of running a successful business. You work hard, grow the business, employ people and take on risk. Then the tax bills arrive.
Tax itself is not usually the real problem. In fact, for many successful family businesses, tax isn't the problem. The bigger issue is when tax is unexpected, poorly timed, not planned for, misunderstood, mixed up with operating cash, or driving decisions that do not make commercial sense.
| Make good money, structure it appropriately, claim what you are entitled to, plan ahead, and keep as much of the after-tax value as possible working towards your family's goals. |
Tax Minimisation Is Not the Same as Spending Money
Spending a dollar simply to obtain a tax deduction rarely makes sense by itself. If you spend $100 to save perhaps $25 or $30 of tax, you are still around $70 to $75 out of pocket. The first question should be: do we actually need this? Then: does it help the business or family achieve an objective?
Tax Isn't the Problem: Good Tax Planning Starts Before the Tax Bill
What profit are we expecting this year?
What tax is likely to arise?
Are PAYG instalments broadly aligned?
What legitimate deductions or timing opportunities are available?
Are there superannuation opportunities?
Are major transactions or capital gains coming?
Are trust distributions or company dividends to be planned?
Is the structure still appropriate?
How much cash should be set aside?
What payments are likely over the next 6 to 12 months?
Tax planning is also cash-flow planning. A completely correct tax liability can still create a cash crisis if the money has not been set aside.
Not All Money in the Bank Is Available to Spend
A bank balance of $300,000 does not necessarily mean the business has $300,000 available. Some may already be economically committed to GST, PAYG withholding, superannuation, income tax, suppliers, wages, loan repayments or other upcoming obligations.
Structure Matters — But Tax Is Not the Only Reason
Sole traders, partnerships, companies and trusts can produce different outcomes. Tax is one factor, but structures can also affect asset protection, retained profits, succession, ownership flexibility, family involvement, administration and sale options.
| A better question than 'Which structure pays the least tax?' is: Which structure best supports what this family is trying to build? |
The Cheapest Tax Outcome Today May Not Be the Best Long-Term Outcome
A strategy might reduce tax this year but create complexity, lock assets into the wrong entity, make succession harder, increase exposure, create future tax problems or restrict access to cash. Short-term savings need to be weighed against long-term consequences.
Tax Debt Is Still Debt
Tax debt still creates cash-flow pressure, interest, financial risk and reduced flexibility. If liabilities are consistently carried forward, the tax debt may be the symptom rather than the cause — perhaps margins, drawings, debt, working capital or growth need attention.
The Future Prosperity Tax Conversation
A tax number by itself is useful. A stronger conversation explains why, compares it with last year, considers legitimate planning opportunities, models the cash impact, plans the timing and connects the strategy back to the family's broader goals.
Ask Yourself
Do you have a reasonable idea of the current year's expected tax before year-end?
Do you know what major tax payments are coming over the next 6 to 12 months?
Is cash being set aside?
Do you understand why your PAYG instalments are what they are?
Are you making commercial decisions primarily for tax deductions?
When did you last review whether your structure still fits the business?
Are there significant loans or balances between family entities?
Do you discuss major transactions with advisers before they happen?
Does your tax strategy support longer-term business, wealth and succession goals?
Are you minimising tax — or simply delaying a problem?
| Does tax feel like something you actively manage — or something that simply happens to you? |
3P'S FUTURE PROSPERITY INSIGHT
PRESERVE
Tax efficiency is a core part of Preserve, but preserving wealth is broader than deductions. It includes forward planning, retaining cash, managing obligations, appropriate structures and making good commercial decisions after tax.
PROTECT
Large unexpected liabilities can consume reserves, increase debt and force decisions at the worst possible time. Good tax management provides greater certainty and resilience.
PROSPER
Once tax is actively managed, surplus capital can be allocated more confidently toward growth, debt reduction, investment, property, superannuation, retirement and succession.
| Instead of asking 'How do I pay less tax?', ask: How do we manage tax efficiently while making the best decisions for our business, our family and our future? |
Book a meeting with our team to discuss your current position and explore practical strategies aligned with your business, family and long-term goals.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
