Avoiding hidden taxes in family businesses

As we all know, paying taxes is a necessary evil.

But being aware of how much tax you’re paying, and where the hidden taxes lie, is really important.

One issue we see over and over again, particularly in family businesses, is family members who are being paid a salary, then also withdrawing further money from the business.

The problem with that is, that while their regular salary might be $80,000, the extra cash they’re withdrawing also counts as income, and will be taxed at their marginal tax rate, plus the medicare levy.

So if you’re earning $80,000 from your family business, but then at the end of the year you’re drawing down a further $100,000 from the business’ surplus, your income is actually $180,000 and you’ll be taxed as such.

However, you do have options to minimise this impact, including taking the money as a director’s fee, dividend, or complying loan agreement, but to manage these options you’ll need expert advice.

The key take-away here is that how you structure your salaries and manage your cashflow is really important to also managing your tax liability.

As always, if you have any questions, please don’t hesitate to get in touch.