Company Profit Tax

[GE]

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Hey everyone, very basic question I would like to ask in regards to paying taxes on net income. For example I own a coffee shop, I make $100,000 in net profit for the business and get taxed 30% will that mean the govt will take my $30,000 and I will be left with $70,000 if I choose to withdraw the earnings?

However if I did not withdraw any of the Net profit of the $100,000 and invested that money straight back into the business eg buying another coffee shop and equipment etc will I be able to use the full $100,000 without being taxed? I hope my question makes sense. I appreciate everyone’s response. Thank you

[James Millar]

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The ATO will take $30,000 and you will be left with $70,000 to do as you please with. Whether you draw the $70,000 out as a dividend (with tax franking credit) or leave it in the company to expand the business – it doesn’t matter.

However if you time the purchase of the new business well you may be able to wash some of the costs off against the profits from current business. All would need to happen in same financial year.

Good tax planning is a must!

Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900

[GE]

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Hi James

Thank you for your reply
Oh ok so even if I do not choose to withdraw any of the profits for the financial year and I net profit $100,000 and choose to put money back into the business I will still be taxed on my net amount is that correct? If you don’t mind may I ask what is the tax rate for businesses?

Thank you so much

[James Millar]

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Correct. The company tax rate for financial years up to 30 June 2015 is a flat rate of 30%. For smaller companies (most) this will likely be dropping to 28.5% from 1 July 2015 onwards. This represents a tax planning opportunity to defer income into 2016 and reduce company tax.

Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900

[ThexArm]

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If you tax planning you will be able to save on what you would otherwise pay as tax.

It is the way you look at the transaction – when you say you are making 100k net profit then you will need to pay tax on that. But if you use part of that money during the year to start another related business then you may be able to reduce the amount of tax. As I said, proper tax planning can help you save in taxes.

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