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Newbie questions: Pre tax investing and book recommendations

Discussion in 'Accounting, Tax & Legal' started by MarkusJOZ, 30th Aug, 2007.

  1. MarkusJOZ

    MarkusJOZ New Member

    Joined:
    30th Aug, 2007
    Posts:
    2
    Location:
    Gold Coast, QLD
    Hi everyone, I have just started my own computer business whereby I offer software and Internet application development.

    My business structure is as follows, we have a family trust which controls the limited liabilty company.

    So far my business has been doing very well and I now have some money which I would like to invest.

    So... Is it possible to invest using pre-tax dollars? If so, would I have to invest in businesses related to Information Technology (The same type of business as my current one?).

    Is it also true that I cannot claim back the expenses I incurr if I go to see a potential client and that I can only claim back expenses for visits to current clients?

    Can anyone recommend a good Australian tax book (A nice easy read would be great). I have a bunch of questions about what I can and cannot do when it comes to my business and as such I am certain that these questions have been asked before.

    Thanks for any / all help
    Regards
    Mark
     
  2. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    Not so sure I understand the structure.

    An expense not of a capital nature to derive your assessable income is normally tax deductible, e.g. interest expense on business or investment loans etc.

    A tax deductible expense is therefore in pre-tax dollars.

    Visiting potential clients or establishing new business ventures is generally a capital expense - but you might be able to deduct them over time under the 'Black Hole Provisions', or they may form part of your cost base if they go to form an asset. However, advertising or exhibiting your services might be tax deductible - see a Tax Agent.

    It sounds like reinvesting profits in growing your business might be an effective strategy ? But then again you might want to diversify. However, to the extent that you have 'Active Assets' then building them up can give relief from CGT when you sell your business. Look at business Goodwill - you get to deduct expenses while building it up AND get multiple CGT relief on disposal. The Government encourages people to start up small business with multiple tax breaks.

    There is no substitute for advice from a good Financial Planner and Tax Accountant. However, the Taxpayers Association is a good self-help group with an excellent handbook on Taxation Law aimed at investors and small business.

    BUT most of all get good advice BEFORE you act.

    Cheers,

    Rob
     
  3. MarkusJOZ

    MarkusJOZ New Member

    Joined:
    30th Aug, 2007
    Posts:
    2
    Location:
    Gold Coast, QLD
    Thanks Rob

    Hi Rob thanks for your advice.

    Re the structure, our accountant suggested it as a way to protect any assets. From what I understand if the company was to get sued and the company was in my name then I could be personally liable. Having a trust owning the company makes it a bit harder to get back to me if anything did go wrong (Not that I am planning on getting sued :) )

    Thanks again
    Mark
     
  4. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    I understand where your Accountant is coming from.

    A director of a limited liability company probably has 2 main personal risks to creditors:

    1. Trading while insolvent.

    2. Trade Practices Act.

    The Trustee acting as director is personally liable as Director but has the right to indemify themselves from trust property and this may be accessible to creditors. If there is insufficient trust property then to the extent any beneficiaries are complicit it the offending activities then they may be personally liable.

    As you see nothing is bullet proof, but I guess you use the structure that justifies the risk and cost.

    Just curious though, this might make it harder to access any small business CGT concessions depending on who owns the assets and who owns the shares and who the beneficiaries are.

    That is where the Accountant's fees come in, they have to consider a whole range of issues on your behalf.

    Keep building and protecting that business, but consult your Accountant on a regular basis as they are a valuable resource. You have no idea what a waste of talent it is just having them prepare your business returns !!

    Cheers,

    Rob