How to save tax in business using a company

 

From the 2023–2024 financial year, most small businesses in Australia are taxed at a reduced rate of 25%, while larger companies pay 30%.

Whereas individual takes rates are higher than this from each dollar over $45000

The above rates do not include the Medicare Levy of 2%

Businesses can benefit from lower individual tax rates by paying themselves an individual income from the company of at least $45,000.

Thereafter, each additional dollar of profit in the business is best taxed in the company at the lower corporate tax rate of 25%.

Please note that you cannot simply withdraw the money from the company; it must stay within the company to benefit from the lower tax rate instead of the higher individual tax rate.

To take money out of the company, you must either pay yourself wages or receive a dividend. The taxes paid by the company on the profit can be claimed as a franking credit on your dividend.

If you withdraw money from the company, you must repay it with interest at a rate set by the ATO (ATO benchmark interest rate) or it will be considered an unfranked dividend and taxed as income.

 

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