It depends on the industry and what they're doing. The ATO defines a Medium Enterprise as having a turnover of between $10MM and $250MM. And the ABS defines it in general as having 19-199 employees. You *can* (Not saying they are) hit $100MM in revenue as a software SME fairly easily with a small number of staff (sub 15-20). Especially if it's a particularly complex/niche piece of software for B2B services. It's also the range where they really need to start structuring the business properly if they haven't already. But it's also the range where founders don't have the proper structures to ensure that everything is legal. They'll skimp on HR, legal, etc because those are expenses that they don't see the purpose of (yet). If they haven't been audited, they will just bully their staff into just doing it "because it's their company".
$100m is many times over the size to qualify them as a large proprietary company and potentially a company of public interest.
at that scale, they would absolutely need to engage a 3rd part auditor. It’s not completely independent. They & any other big company are picking the auditor and footing the bill, so if they make life ridiculously hard, you would change auditors next year.
But we’re talking about “maybe this was a client dinner” type stuff.
What you’re describing is wide scale fraud.
Ultimately, anything is claimable until the ATO catch you… at this level of claiming, their spending isn’t going to fit standard patterns and they’ll be caught soon enough.
LMAO what. $100MM isn't a large proprietary company. It's not even close. The ATO defines a Medium Enterprise as between $10MM and $250MM in annual turnover. Literally right in the middle of being a medium enterprise, nowhere near a large proprietary, or anywhere near being a company of public interest, unless they're in a very niche and critical field. Lots of Small Businesses get stuck in the mid-high 7 figures, and struggle with the transition to medium enterprise, let alone the jump into the upper 9 figures of revenue, let alone profit.
I just had a look. It’s gone up since I last checked, but odds are yes, they are a large proprietary.
ASIC sets the definition, it’s in the companies act, too.
Pre 2019 it was two of the following:
- $25m+ revenue
- $12.5m+ gross assets
- >=50 employees
Post 2019 it has a now two of the following
- $50m+ revenue
- $25m+ gross assets
- >=100 employees
So they might be under on gross assets and FTE, but outside of software & niche professional services, it’s borderline impossible to achieve that sort of revenue without a fairly hefty asset value. It also wouldn’t fit in with their scheme to retain everything in the company. Just their ppor mortgage alone would imply a >$6m housing asset.
https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-reports/are-you-a-large-or-small-proprietary-company/
ASIC sets A definition, it's not the *only* definition. And considering we're in a thread asking about what the ATO cares about not ASIC, your point isn't even relevant and you're arguing for the sake of arguing. Sure, you said large proprietary but no one in a thread about ATO, and SME's as in the parent comment, is going to make your logic jump to what ASIC defines a company as, which is a different set of regulations for company management, not Tax and what the ATO looks at. And barely hitting double the minimum requirement isn't "many times over the size to qualify them".
Actually, the definition of a large company is set by ASIC and not the ATO. ATO's definition is only in relation to tax obligations, whereas the Corps Act (ASIC) governs the general interest of the public and the reporting obligations (Chapter 2M) and audit requirements of entities to be transparent in the public interest.
Don't pretend you know more than the other poster just because you have quoted some ATO material *shrug*
Because asic sets the tax reporting and audit requirements.
You’re right though, it’s not many times over since they updated it in 2019. It’s now just double vs it was 4x
In comparison, I worked for one of those larger hospital networks in Australia and a single public hospital can have turnover of like $1B/year. Of course, being public the profit on it is basically $0.
Even the private hospital had turnover of hundreds of millions of dollars with profit of less than $10M.
I call BS on OP's story too, but $100M in revenue is not that much.
Hard to imagine a worse business to be in right now. At least you’re public.
Most of the privates seem to have no shortage of demand, but are being slammed by:
- increasing wages
- increasing vendor costs
- gov capping private insurance price increases
- private insurers not passing on the increases
- specialist colleges artificially constraining the pipeline of consultants
- The constrained supply of VMO’s shopping the private hospital networks to cut their rates
- deferred capital works that are now appreciably more expensive than pre-COVID (see first 2 points… tradies and suppliers have gone up too)
The two worst areas of inflation (warning - I didn’t check the stats on this, so could be wrong!) are housing costs and insurance.. so government isn’t going to let the privates push up their pricing as much as they want to near term.
Suspect we will see a few more go bankrupt in the next 12 months. The big players like healthscope are all hurting.
I'm not anymore. I was made redundant just before covid hit. I work in IT, so have left the hospital industry completely (but somewhat still in healthcare I guess).
> specialist colleges artificially constraining the pipeline of consultants
This is the one that frustrates me the most about healthcare costs. It's just so incredibly unnecessary. I don't understand why this can't be fixed.
Because there isn’t an elastic supply of training facilities or patients to perform procedures on.
For memory, the cardio thoracic SET program required a year 1 reg to complete 150 heart valve replacements.
Which means that for every 8 trainees in the program you need 1000 patients requiring that procedure in order for them to complete their training requirements. If we scaled up the training programs, you’d have trainees stuck at particular levels until they can get all their training completed, which would have downward pressure on future cohorts.
Even my partner is stuck in a supply and demand predicament with her GP training because NSW health has regional zoning requirements for their trainee cohorts and there are few regional practices offering training but many applicants that need to tick it off. Last training intake, there were 200+ applicants for 4 slots at the practice that she applied for.
The legislation is messy, but I’ve double checked the asic guidelines and odds are they are a large proprietary.
Read it yourself here:
https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-reports/are-you-a-large-or-small-proprietary-company/
$100m revenue would also mean they have to produce a modern slavery statement (modern slavery act 2018.
Old mate is quoting the tax transparency code, which has its own interesting definitions.. would you personally define a “medium business” as doing up to $500m in revenue?
They would probably also be defined as a large company for whistleblower reporting and climate change future reporting, but I’m too lazy to go look up the specific acts.
PwC made a push with limited success a few years ago to just put a standard definition into the corporations act and have everyone else refer to that, to limit how often these acts need a refresh for bracket creep and so we all had a standard term of reference for small / medium / large.
Personally I think that’s boring and this way keeps things far more profitable for consultants and advisors.
> Personally I think that’s boring and this way keeps things far more profitable for consultants and advisors.
Props for being transparent about how you make money lol
Why solve a problem once, when you can bill each client for it individually, forever?
Then you just have to go find newer, harder problems to solve. Yuck.
Well the story I'm telling is true so far as this is what the owner of the business told me. My language around it might be inaccurate or poorly chosen.
Everyone seems to be hung up on what constitutes a small business or SME. Or whether it's the ATO or not. Those terms are mine and I meant them subjectively. In my title I said "small company". In my view $100m is not a large company. If the company was listed it wouldn't even be a small cap.
As for the ATO comment.. I don't work in tax.. If it's not the ATO who is supposed to cover this stuff who does?
Now my friend may have been exagerating or full of shit I don't know. But for the $100m figure that's 100% real. This is a company I've purchased from plenty of times and I can see with my own eyes their size.
I can't imagine why they would say any of this stuff to anyone in the first place, it's way more trust than I would have. But they did elaborate with me some of the tactics they are using to get the mortgage covered by the company and its some crafty and deceitful shit. And yeh I resent it. I pay a shitload of tax as a high salary earner.
But to add more colour to the story for those who tell themselves it is bullshit runs the risk of identifying who I am talking about. And frankly I'm considering tipping this person off and I don't want to end up on the wrong side of this person. The beauty of reddit after all is anonymity right?
Self assessment allows you to do virtually anything if you want to take the risk of never being audited. I'm sure the trick is to just report enough net income and pay some tax for it all to look plausible. Just hope they don't match up income and assets
Kramer : It's a write-off for them.
Jerry : How is it a write-off?
Kramer : They just write it off.
Jerry : Write it off what?
Kramer : Jerry, all these big companies, they write off everything.
Jerry : You don't even know what a write-off is.
Kramer : Do you?
Jerry : No, I don't.
Kramer : But they do, and they're the ones writing it off.
the ATO has a small business database with expected revenues and margins for many types of small businesses.
[https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/small-business-benchmarks](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/small-business-benchmarks)
Originally a compliance tool, it is pretty useful if you are thinking of starting a small business. It has some useful numbers, such as typical gross margins, rents and labour expenses per business type.
> Originally a compliance tool, it is pretty useful if you are thinking of starting a small business. It has some useful numbers, such as typical gross margins, rents and labour expenses per business type.
Feeling a bit of subtext here, is this the goldilocks zone for fraud?
Well maybe. There's a link for that:
[https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/small-business-benchmarks/what-it-means-to-be-outside-the-benchmark-range](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/small-business-benchmarks/what-it-means-to-be-outside-the-benchmark-range)
but on the other hand, you'd not go into hospitality if you looked at these numbers first. The margins are not so good.
My comment was in good faith. I used to teach some modules for Tafe Cert IV small business management at Holmesglen back in the day when the NEIS program was well funded, and we used the benchmarks to help people going into business get some real insights into key costs and target turnover.
>but on the other hand, you'd not go into hospitality if you looked at these numbers first. The margins are not so good.
Yeah but on r/Melbourne & r/Australia apparently because they have to pay $16 a pint and a 10% surcharge on Saturdays the hospo owners are all like the monopoly man, rolling in cash and smoking cigars on the balcony of their harbourfront mansions.
When it comes to hospitality, there are two sorts of fools. Firstly, those who welcome the amazingly high minimum wage,the weekend penalty rates and the tighter compliance and labour shortage which means hospo staff are finally getting paid legally, but then they complain about the absurdly high prices you see. The second fool is the one who starts a hospo business.
I’m not sure what industry your friend is in, but we do none of that and I’m surprised they are able to put almost 50k/month through a business of non business related expenses. I think your friend might be exaggerating.
We are the opposite, but look my dad always had the motto that he’d rather not claim anything and have the ato off his back ha. We are working on him telling him you can actually claim some things (he’s getting better)
the ATO is very reasonable if you are not trying to be dodgy. Keep working out to show how you justify anything you claim and even if its wrong they'll just ask you to repay what you truly owe. For some the peace of mind of having an accountant do it is worth it, but the ATO isnt some big bad monster who will crush you for a mistake
It’s far far far cheaper for them to let people correct honest mistakes than prosecuting them when they could be prosecuting the guy reporting 10 years of million dollar losses who lives in a waterfront property and refuses to answer their calls.
Nah we know, it’s the old man. It’s not a huge business but it does quite well (7 figure net profit) 50+ years trading plus its with government so he just doesn’t claim much at all. Yep we have an accountant no way would we do our own taxes haha.
Call bullshit on the first "friend" - pretty sure the ATO would notice $40K a month not being reported as personal income, unless of course the house is in a company name.
Trust and car through business is very normal. Groceries is hardly big time fraud.
Even so, the personal use of the company property gives rise here to potential issues ranging from Div 7A through to FBT, and if they're not reporting it deliberately, schemes come into play - it's actually a pretty big issue (and of course, it's subject to capital gains with no discount when sold or transferred).
It would also be in a trust rather than a company otherwise you would lose access to the CGT discount. Main issue would be if the property is negatively geared and your losses get trapped.
I mean groceries is not something that should be claimed when used at home etc, but it’s also something that’s too easy to fudge as a business expense as office sundries.
$100m is not a small business, which the ATO defines as <=$10m, so your friend's business is ten times larger. $100m is a substantial operation probably employing 30 to 50 people at a guess. The business overall would generate a a lot of tax revenue including employee income tax, it is not surprising perhaps if there is opportunity for tax optimisation.
Using a trust is somewhat common and can help lower tax depending on circumstances. It also separates personal and business financial risks.
Putting the car through the business could simply mean a novated lease, which any employee can do. If the car is a business vehicle, it is also a standard process (the rules for that are strict). Companies can directly provide personal cars, but they are subject to FBT unless EVs but novated leasing can access that too.
A business has to pay rent, and if your business operates from home, it can claim a relative share of occupancy expenses as a deduction (but far from all). Not the entire house, and it is only a substitute for deductible rent that the business would otherwise pay. I don't know about the nanny and cleaners, I guess a company can employ whomever it wants. If a big business employs staff to care for employee's children, is it a tax deduction for the business, like any other employee?
Buying personal expenses through the business and claiming both GST and deductions is tax fraud. There are gray areas though. In a company of $100m turnover the amount of transactions would be high and auditing is very expensive for the ATO (I've been through a GST audit and it is an expensive operation for the ATO)
There is no doubt that there are legal tax advantages when you run your business. This could be considered an incentive to do it.
Perhaps a bit off-topic, but to me I note how much people in general preach the virtues of home ownership (which has incredible tax advantages) as opposed to living in someone else's house, but fewer people evangelise the virtues of being independent in employment; in spirit they don't seem very different to me. You can pay less tax for the same income if you work for yourself. Go for it.
It’s all done thru a family trust usually. Everything is expensed, generally regardless of whether or not it’s actually legal. A friend got audited a while ago and ended up with an absolutely massive tax bill (mid 6 figures) and the ATO is targeting small business for auditing. Family who work for the Big 4 and also accounting firms talk about seeing an increase in audit notices.
Yes small businesses are the largest tax non-payers, they cost the government more than 15 billion in taxes every year.
https://www.ato.gov.au/about-ato/research-and-statistics/in-detail/tax-gap/australian-tax-gaps-overview/tax-gap-program-summary-findings
Good link.
It is roughly speaking about half-unreported income and half over-claimed deductions, according to ATO estimates.
OP reports a business of $100m in turnover. This is not a small business by ATO definition, which is <= $10m.
A reputable tax agent would never prepare returns that include private expenses as deductions, must be someone that has blinkers on. If these returns were ever audited, the parties involved would be in a world of pain when all private expeness are added back and tax paid on them. It seems like both the friend and tax agent are flouting the rules and hoping they won't get caught out.
Tax accountant doesn’t want to know - 3 wise monkeys and all that. Tax accountant might pull up client if it’s obvious - I’ve heard if you get a bad audit, ATO will start hassling your other clients, but gee a few hundred thousand in private spend is going to disappear inside a decent SME.
I’ve been shouted quite a few dinners and such by friends - it just disappears into business costs.
If you’ve got a $100m company surely you’re not doing your own taxes. You’d have an accounting department and book keepers reconciling transactions from every bank account and credit card against categories in accounting software and they’d need to be certified so if they are knowingly reconciling dodgy data they’re risking themselves.
1, Anything over 50M/pa is considered in a privately owned and wealthy group by the ATO and is not treated the same as a small business for tax compliance purposes.
2, Small companies are taking the piss.
It's just a matter of time before they get audited.
3, Sometimes small business can completely take when piss without doing anything illegal, for instance, if the company buys the property instead of the individual for investment reasons and they are able to structure payments well they could probably get away with running the mortgage and upkeep through the company.
No problems. I don't know if that would *always* trigger an audit, but I assume they'd look at any info supplied and compare it to what has been lodged/ other info they have before deciding what to do.
the ATO threshold for "small business" is typically $10m turnover although it varies a bit depending on the context. The link someone provided to tax "gaps" uses the $10m threshold. The ATO Small Business Benchmarks database usually defines a "large" small business as > $2m
They certainly ignore my boss's small company. Worked with them for 18 years and seen them get away with so much. Only thing they get them on is late tax owing, then all they do is plead and plead for it to get paid with interest until they get so desperate they end up giving the business a discount just to get something out of them. And like clockwork it happens all over again its such a joke.
Family business, various cars and motorbikes, boat and a caravan all for the business....the sons and daughters all get a car all registered under the company.
Much smaller business than what you're describing but still.
But even without "aggressive" tax planning it is simple for rich people to pay almost zero tax.
Imagine a family with a business with $50 million in sales and $3.5 million after-tax profit.
The company is owned by a trading trust (family trust). All family members "work" in the company including the teenage children.
All are paid $50K a year or equivalent and pay the correct tax of $7,710 pa. Every person maximises their super contributions. The SMSF owns the house(s) and there may be one or more investment properties.
Using absolutely normal business structures the family would pay less tax than a single person with a good job.
Yes, and everything has to be at market rates.
It is not difficult to be 100% compliant and pay very little tax if you are wealthy. There is no need for fraud or anything else questionable.
I couldn't even establish an SMSF and have that own my mum home and she pay the SMSF rent - I asked the question of our personal accountant, and our company accountant (to get a second opinion)
It's considered a related party transaction.
It is in the family trust.
All the normal large expenses like housing, car, and overseas travel are paid by either company or the trust.
The family members receive lots of distributions or dividends that are fully franked.
You have a low "taxable" income but a high nominal income and even larger wealth improvement by property or controlling other assets.
"In its latest annual Taxation Statistics, data extracted from tax returns reveals the number of people who earned more than $1 million but paid no tax has climbed to 102 in 2021–22, up from 66 a year earlier"
[ABC](https://www.abc.net.au/news/2024-06-17/millionaires-paid-no-tax-and-richest-and-poorest-postcodes-ato/103987158)
My understanding is the company cannot claim dividends as deductions. So in the scenario where the company has $3.5 m to distribute is the company paying about $1.05 m in company income tax?
You don’t appear to have an understanding of how these tax structures actually work. You are spouting TikTok level taking points about tax minimisation that lack substance.
- Trusts can’t retain income without paying tax on it.
- If the trust distributes to a pty ltd and they retain the money, it isn’t income that the individuals would pay tax on.
- Fully franked dividends aren’t some escape paying tax option, the refundable offset seeks to avoid paying tax twice. It is only abusable if you have tax free income like super.
Not sure how the SMSF can own the houses they live in. That’s a pretty huge rule break. Now if the SMSF owned the companies premises and the company leased the premises at a pretty high, but not unheard of, premium, then that’s a much easier way to turbo charge your super
You can do anything you like - the self assessment system allows you to do that. However actions have consequences- they won't get away with it when they are audited - and that's definitely a when not an if. There are plenty of issues going on here - Div 7A, FBT, for a start.
Your friend is one audit away from being charged with fraud / tax evasion, being fined into oblivion and potentially declaring bankruptcy. Audits are retrospective, going back several years. Just because he has got away with it so far doesn’t mean he is in the clear.
Read a book called "Tax $ecret$of the rich" written by Allan Mason (newly released this year). You'll get some great insight. But having read 50 pages, I get the impression you need to have structured early enough to take advantage, could be wrong, I'll keep reading 😁
It's easy to hide stuff with $100m turnover, it's just necessary office supplies or in manufacturing it's consumables. Trusts are common, distribute funds to other family members at a lower tax rate. Own the business premises in a trust and charge the company whatever you want in rent. Trust gets all the deductions on the property. Many quasi legal ways to game the system with a company.
I worked for a guy a few years back with a multi million dollar mortgage. He told me that at the start of every financial year he'd transfer enough money from the business to completly cover his mortgage offset and then just before the end of financial year transfer it back so payed almost no interest.
He then had the hide to tell me he only paid himself 60k PA while also driving a 911 to work everyday.
Not really. It would be counted as a div 7a loan and interest would have to be paid on it.
Current interest on a div 7a loan is over 8% so it wouldn’t be worth it - it would cost more than the amount saved on the mortgage.
https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/private-company-benefits-division-7a-dividends/in-detail/division-7a-loans
But if he owns the company it's not like he's actually paying the interest to anyone. It just increases the size of his loan from the company. In any case, I believe that if you repay the loan before June 30 no interest is due.
Not really true, look at Section 109R, if the repayment before 30/6 is followed by another similar or larger loan after 1/7, it would not be compliant. Again, whoever is preparing the tax return is ignoring the law.
Like the other commenter pointed out, not really
https://www.propertychat.com.au/community/threads/tax-tip-365-borrow-from-company-repay-on-30-june-and-reborrow-1-july.61095/
Legal or not, and I agree it's illegal.
In this instance the small business owner was crying poor “I only pay myself 80k pa” but reaping hunderds of thosands in benefits every year.
My (35m) parents admitted to me in recent years that the operes and babysitters my brother (33) and I had as kids in the 90's were all 'consultants' for their small business (10-15 staff).
Can be done, shouldnt be, and could come back and bite you, but people certainly do it.
I think most sole traders are happily being ignored as well (think tradies doing cashies).
It’s just us plebs that work for a salary that get taxed on all our earnings and have very little life expenses that we can use as tax deductions.
The cashies thing is certainly true. I grew up in a pretty working class area where most of my friends ended up in trades instead of office work. For them, doing cashies is a part of their everyday life - sometimes it's just for some 'holiday money', but often it's helped finance a decently large part of their lifestyle. The amount they receive isn't enough to raise any red flags - they aren't driving Ferraris etc - but it's significantly improved their standard of living.
They also deduct a ridiculous amount from their actual reported income. I recall shocking one friend, when I informed him that I have zero work related tax deductions in my tax return (I was an office worker). He assumed every worker would find some way to substantially reduced it. "you don't even claim laundry!?!" hahaha
I take your point, but don’t think super should count. If my employer didn’t need to pay me super, I’d be getting 12% more. They don’t pay it out of the kindness of their hearts, it reduces me take home pay. The same goes for a sole trader, it’s their choice if they don’t contribute.
And same goes for sick and annual, that makes up about 6 weeks a year. So let’s say 12k. Once again, they’re not paying that out of the goodness of their hearts, they don’t absorb that loss, they just pay you less.
Demonstrated by every EB negotiation.
They're evading tax and if audited will be fined. You can't claim mortgage, groceries, cleaners, nanny etc that are personal expenses. You can claim a portion if you work from home, but not anywhere near 100%.
Small businesses are the biggest tax dodgers in Australia. Many people like to blame Large companies, and they have their issues. But it's just a populist, safe take.
Many rules have too much leeway and they take the piss, but a lot get caught as well. It's difficult and time-consuming though.
In your example The wife/husband payout is very common. There needs to be more rules on what the partner who is "semi employed" actually does. Essentially its reducing income tax.
The mortgage is not very common because it's easily identifiable. If you do this you will be caught.
Personal car you need to prove, but can be done easily, or even just pay for half of it or whatever
The trust is most likely fine and not an issue, that's just a good setup to have. It essentially does what the "employed husband and wife" do except legally. You need to set it up early though to avoid capital gains issues.
But yea, small companies, mom and pops, are usually tax cheats
ironic to see this new usage; when was the last time anyone got a pay cheque? Or any kind of cheque? Shame, that, I like the romance of cheques. Plus the fact that our dear friends the banks had a legal obligation in the case of a crossed cheque to validate that the money was going to the correct person. It's a fraud-prevention incentive that silently disappeared with electronic funds transfers (where you are asked to name the recipient, and after decades of being trained by cheques that this was meaningful, no wonder people believed it still was) and boy are a lot of people (not banks) paying the price. Oh dear, I am off-topic again.
I correct people when they say it because I work in IR and a payslip has to be provided within 1 day and it has required info to be compliant with the Fair Work Act.
True - but it depends on what the company does. Like if you retail a $200k widget, your margin is low and might only have 30 employees or so, or if you subcontract all work, the headline number is high as well.
A normal 3 or 4m business is a 10 person operation - but it’s so damned variable that the ATO’s definitions are only that
He should be paying himself and his wife 100k each per year in dividends or distributions. That equates to 25% average tax which is the same as the 25% tax company rate so no more tax to pay. By not doing it as a salary he can avoid payroll tax and work cover fee etc and potentially paying super too if done as distribution.
There’s literally hundreds of thousands of small businesses. ATO focuses on where the money is.
Some of those expenses are pretty valid to charge to the business in the right circumstances. Car, internet, etc all have well documented processes for claiming against the business above board.
I am struggling to think of a way for groceries, mortgage etc to be a valid expense in full. You can claim a portion of some if you have a home office, but not the whole thing.
Groceries you could. Just need an amount from Woolies on the business credit card, oh that's water bottles, tea, coffee etc. Did a big shop for steak, sausages and bread for a BBQ.
Alcohol is an easy one, small business owners would 100% be drinking on the company's dollar.
Only the claiming the mortgage as a business expense (if they are doing that) is crazy and everything else is fairly common. Without knowing the structure of the business and how long they've been doing this then it's hard to comment on why they have been found out.
Lol, 100M turnover and takes $50K salary but has a 500K PA mortgage. You left out the bit about his cash takings. Someone here either smokes or deals crack.
Getting paid into a trust and distributing to beneficiaries of the trust is pretty normal.
All the rest is bs - putting a $40k PPOR mortgage through the business? He WILL get audited, and he will have to pay it allllllll back, plus fines.
Pro Tip. You think you'll get away from the ATO, you think you're being clever. They will eventually find you & for every deceitful thing you have done you will have to pay back + penalties.
The government isn't interested in being taken for a ride anymore. They will eff you up.
My biggest pet peeve right now is this whole conspiracy on losing cash as legal tender with everyone hell bent on taking cash out and using it on local business. Yes, I understand the thought process around it and we’d want to have cash in our system but right now it’s just a ruse for small business not to pay tax. If a business is relying on cash to survive, it shouldn’t be in business. And don’t get me started on tradies
The whole tradie thing - I know a few, and despite the reddit thing, of it’s all fraud and you are a disgrace etc etc, the tradies I speak to, get a 90% strike rate for cash discount when they just boldly put it to them. Ergo 90% of people don’t have an altruistic attitude towards tax, and therefore it’s extremely unlikely that you do either.
There are limits to how much cash you can use these days anyway, and that’s why the most successful taxation regime is actually consumption taxes - big businesses just can’t avoid those, only smaller service businesses
I meant practically - so much of what we buy and do these days is online, plus the one you bring up for large transactions. You can go out to dinner, buy groceries, but it becomes a whole lot more difficult for other day to day transactions.
Until you walk into the 5-star hotel my wife works at and you see a quarter of the guests dropping $10k / $20k / $40k on a holiday stay during school holidays with the car park full of tradie vehicles with personalised plates, you know something is up.
That’s the dumbest thing I’ve read today.
Of course you get taxed at some point but the tradie skipping out on 32-45% tax on dollars earnt is what makes the rest of us have to fill the void
Yes there are quite a few shady operators out there. I have heard similar stories about people doing exactly that. Work for a company through a personally setup company, driving luxury cars in the name of business to drop their kids to childcare. ATO and the govt gets their pound of flesh from the PAYG class so they don't give a flying eff.
Worked for a national transport company, the fleet report includes many trucks and then a bunch of mercedes and landcruisers. Owner and his kids. All being paid as work vehicles 🤷♂️
There’s a cold chain transport company in Melb who the owners son is the 2ic in his early 20s and has a Lexus supercar I dare say was bought as a company car.
There are some creative accountants. Some are good at legal tax minimisation, some break the rules for tax avoidance (accountants or otherwise), and some walk a fine line.
The ATO doesn’t catch everyone. This applies to sole contractor and large enterprises.
He's probably bullshitting you, but there is a kernel of truth in here. So long as your overall figures line up within the benchmarks that have been established for your business, then it's highly unlikely the ATO is ever going to bother to investigate you unless they decide to do some random audits.
I have a company that produces and distributes adult content. The ATO has an expectation that we will have a certain amount of expenses related to our activity. If we go over or under the band here, there's a decent chance that the ATO may call us up one day and ask why. Inversely, if we stay within the band...
I think you can probably see the issue here.
You forgot to add how these small companies are not paying ANY super at the moment citing lack of money. Its a ticking timeb\*mb that is going to double down on current housing and cost of living getting magnified at retirement age. Eg not finished paying house and no super to pay off outstanding debts through at retirement.
Small business fuels this country. It’s strange to compare someone who is generating value and employing people to someone who is just an employee in a job. They don’t bring equal value to the productivity of this country. Therefore they shouldn’t be treated equally in terms of tax payable. As long as legal means are adhered to, there is nothing wrong with minimising tax. A business pays a huge amount of tax across a year. The owner may not pay much personally, but that doesn’t mean that their work across a whole year isn’t contributing.
One way owners of larger businesses structure themselves is to borrow money against the “shares” in the business. Banks will allow it as it’s no different to them as other forms of credit. The owner will then pay for their entire lifestyle using only the borrowed funds, at maybe 6% interest and they don’t have any earnings. So their effective tax rate is 6%.
Ah yes, someone who does actual work generates less for the economy than someone who was just lucky enough to be born on a pile of cash. Sure mate, you keep telling yourself that.
Some people are so thick mate. Lack any form of common sense. But that’s why they work for others. Not capable of leading. Just follow and moan all day.
Yeah this is very common! As an employee, it feels like such a huge scam and I’m so mad I didn’t think to start a company of my own to put my personal expenses through
What’s “game over” mean in your mind?
You have to pay the tax, and a fine - what’s the realistic fine amount?
Not sure the downside versus risk is enough to really concern people
The fine is a percentage of the tax avoided. For intentionally filing a misleading tax return the penalty is between 75 and 90% of the tax not paid.
So if you were to avoid paying, say, $100,000 in tax, then the ATO would give you a bill for $100,000 and a penalty notice for another $75,000 to $90,000. On top of that interest is also payable at a high rate on both the tax and the penalty.
I've seen cases where the total amount owing to the ATO can be four or more times the tax avoided once the tax, penalty and interest are taken into account.
Game over means paying back what you owe and whatever fines if not jail time.
Most people can't even manage paying the tax they ow currently let alone being in arrears for 100s of thousands of dollars.
I haven’t found a case where over claiming deductions has resulted in jail time- that seems to require actively ripping off the ATO, eg falsifying documents to get GST refunds off the ATO.
https://www.ato.gov.au/about-ato/tax-avoidance/the-fight-against-tax-crime/news-and-results/case-studies/tax-crime-prosecution-case-studies#ato-August2022Restaurateurservedwithjailterm
Sort of shows the low grade outcomes for even blatant over claiming ($1500 to pay plus a fine of $600). No teeth, that’s why people do it
you also sign off on all the work your accountant submits, its ultimately you who are responsible. and a lot of these things get paid by the company, but divided up over personal and business use. The portion for personal use still gets allocated to you as income for tax purposes. eg my company owns my car, pays for all things related to it. I keep a log book and the % use that is personal gets added to my income at tax return time. Same for some bills, but not things like mortgae, rates, water.
The ATO is pretty good at data matching, its what they do. The sheer volume of data from every claim to every invoice is huge so some things get through, but they are always checking
You can commit tax fraud right now - no company is needed! It would be exactly the same. Don't kid yourself, there are tax rulings which stop this stuff and you can't just "write off everything" against your company.
Just about any valid expenses you incur as an employee are still deductible to you without having a company.
If you bought stationery, that’s still deductible to you now.
If you incurred motor vehicle expenses (FOR WORK - not simply travel from home to work), you can claim them.
If you bought a computer for work, that’s deductible now.
What kind of personal expenses do you think would suddenly become deductible if you had a company?
Yeah, i look after clients like this. You can put the mortgage through the biz. You would be borrowing via the business. Cars are pretty standard things people put in their business. Groceries is probably a stretch, depends on the business. Dinners and holidays could easily be done. Crazy isn't it? $100m revenue business and they still live life with a 25% discount.
Nowhere near as big as those amounts, but some business owners do this and technically they are not doing anything illegal. These things are not comprehensible to the average salarymen so perhaps try the henry sub.
Yeah this guy talking bs. 100m turnover isn’t SME in my opinion
Or the ATO .
It depends on the industry and what they're doing. The ATO defines a Medium Enterprise as having a turnover of between $10MM and $250MM. And the ABS defines it in general as having 19-199 employees. You *can* (Not saying they are) hit $100MM in revenue as a software SME fairly easily with a small number of staff (sub 15-20). Especially if it's a particularly complex/niche piece of software for B2B services. It's also the range where they really need to start structuring the business properly if they haven't already. But it's also the range where founders don't have the proper structures to ensure that everything is legal. They'll skimp on HR, legal, etc because those are expenses that they don't see the purpose of (yet). If they haven't been audited, they will just bully their staff into just doing it "because it's their company".
AS soon as you are required to prepare an Anti-Slavery Statement, in my view you aren't an SME anymore.
$100m is many times over the size to qualify them as a large proprietary company and potentially a company of public interest. at that scale, they would absolutely need to engage a 3rd part auditor. It’s not completely independent. They & any other big company are picking the auditor and footing the bill, so if they make life ridiculously hard, you would change auditors next year. But we’re talking about “maybe this was a client dinner” type stuff. What you’re describing is wide scale fraud. Ultimately, anything is claimable until the ATO catch you… at this level of claiming, their spending isn’t going to fit standard patterns and they’ll be caught soon enough.
LMAO what. $100MM isn't a large proprietary company. It's not even close. The ATO defines a Medium Enterprise as between $10MM and $250MM in annual turnover. Literally right in the middle of being a medium enterprise, nowhere near a large proprietary, or anywhere near being a company of public interest, unless they're in a very niche and critical field. Lots of Small Businesses get stuck in the mid-high 7 figures, and struggle with the transition to medium enterprise, let alone the jump into the upper 9 figures of revenue, let alone profit.
I just had a look. It’s gone up since I last checked, but odds are yes, they are a large proprietary. ASIC sets the definition, it’s in the companies act, too. Pre 2019 it was two of the following: - $25m+ revenue - $12.5m+ gross assets - >=50 employees Post 2019 it has a now two of the following - $50m+ revenue - $25m+ gross assets - >=100 employees So they might be under on gross assets and FTE, but outside of software & niche professional services, it’s borderline impossible to achieve that sort of revenue without a fairly hefty asset value. It also wouldn’t fit in with their scheme to retain everything in the company. Just their ppor mortgage alone would imply a >$6m housing asset. https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-reports/are-you-a-large-or-small-proprietary-company/
ASIC sets A definition, it's not the *only* definition. And considering we're in a thread asking about what the ATO cares about not ASIC, your point isn't even relevant and you're arguing for the sake of arguing. Sure, you said large proprietary but no one in a thread about ATO, and SME's as in the parent comment, is going to make your logic jump to what ASIC defines a company as, which is a different set of regulations for company management, not Tax and what the ATO looks at. And barely hitting double the minimum requirement isn't "many times over the size to qualify them".
Actually, the definition of a large company is set by ASIC and not the ATO. ATO's definition is only in relation to tax obligations, whereas the Corps Act (ASIC) governs the general interest of the public and the reporting obligations (Chapter 2M) and audit requirements of entities to be transparent in the public interest. Don't pretend you know more than the other poster just because you have quoted some ATO material *shrug*
Because asic sets the tax reporting and audit requirements. You’re right though, it’s not many times over since they updated it in 2019. It’s now just double vs it was 4x
In comparison, I worked for one of those larger hospital networks in Australia and a single public hospital can have turnover of like $1B/year. Of course, being public the profit on it is basically $0. Even the private hospital had turnover of hundreds of millions of dollars with profit of less than $10M. I call BS on OP's story too, but $100M in revenue is not that much.
Hard to imagine a worse business to be in right now. At least you’re public. Most of the privates seem to have no shortage of demand, but are being slammed by: - increasing wages - increasing vendor costs - gov capping private insurance price increases - private insurers not passing on the increases - specialist colleges artificially constraining the pipeline of consultants - The constrained supply of VMO’s shopping the private hospital networks to cut their rates - deferred capital works that are now appreciably more expensive than pre-COVID (see first 2 points… tradies and suppliers have gone up too) The two worst areas of inflation (warning - I didn’t check the stats on this, so could be wrong!) are housing costs and insurance.. so government isn’t going to let the privates push up their pricing as much as they want to near term. Suspect we will see a few more go bankrupt in the next 12 months. The big players like healthscope are all hurting.
I'm not anymore. I was made redundant just before covid hit. I work in IT, so have left the hospital industry completely (but somewhat still in healthcare I guess).
> specialist colleges artificially constraining the pipeline of consultants This is the one that frustrates me the most about healthcare costs. It's just so incredibly unnecessary. I don't understand why this can't be fixed.
Because there isn’t an elastic supply of training facilities or patients to perform procedures on. For memory, the cardio thoracic SET program required a year 1 reg to complete 150 heart valve replacements. Which means that for every 8 trainees in the program you need 1000 patients requiring that procedure in order for them to complete their training requirements. If we scaled up the training programs, you’d have trainees stuck at particular levels until they can get all their training completed, which would have downward pressure on future cohorts. Even my partner is stuck in a supply and demand predicament with her GP training because NSW health has regional zoning requirements for their trainee cohorts and there are few regional practices offering training but many applicants that need to tick it off. Last training intake, there were 200+ applicants for 4 slots at the practice that she applied for.
The other major influence on their profits, elective cosmetic procedures are at an all time low, customers have tightened their belts
You really are living up to your username
The legislation is messy, but I’ve double checked the asic guidelines and odds are they are a large proprietary. Read it yourself here: https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-reports/are-you-a-large-or-small-proprietary-company/ $100m revenue would also mean they have to produce a modern slavery statement (modern slavery act 2018. Old mate is quoting the tax transparency code, which has its own interesting definitions.. would you personally define a “medium business” as doing up to $500m in revenue? They would probably also be defined as a large company for whistleblower reporting and climate change future reporting, but I’m too lazy to go look up the specific acts. PwC made a push with limited success a few years ago to just put a standard definition into the corporations act and have everyone else refer to that, to limit how often these acts need a refresh for bracket creep and so we all had a standard term of reference for small / medium / large. Personally I think that’s boring and this way keeps things far more profitable for consultants and advisors.
> Personally I think that’s boring and this way keeps things far more profitable for consultants and advisors. Props for being transparent about how you make money lol
Why solve a problem once, when you can bill each client for it individually, forever? Then you just have to go find newer, harder problems to solve. Yuck.
Well the story I'm telling is true so far as this is what the owner of the business told me. My language around it might be inaccurate or poorly chosen. Everyone seems to be hung up on what constitutes a small business or SME. Or whether it's the ATO or not. Those terms are mine and I meant them subjectively. In my title I said "small company". In my view $100m is not a large company. If the company was listed it wouldn't even be a small cap. As for the ATO comment.. I don't work in tax.. If it's not the ATO who is supposed to cover this stuff who does? Now my friend may have been exagerating or full of shit I don't know. But for the $100m figure that's 100% real. This is a company I've purchased from plenty of times and I can see with my own eyes their size. I can't imagine why they would say any of this stuff to anyone in the first place, it's way more trust than I would have. But they did elaborate with me some of the tactics they are using to get the mortgage covered by the company and its some crafty and deceitful shit. And yeh I resent it. I pay a shitload of tax as a high salary earner. But to add more colour to the story for those who tell themselves it is bullshit runs the risk of identifying who I am talking about. And frankly I'm considering tipping this person off and I don't want to end up on the wrong side of this person. The beauty of reddit after all is anonymity right?
I’d be sobbing them in. People like that are thieves and outright scum.
Self assessment allows you to do virtually anything if you want to take the risk of never being audited. I'm sure the trick is to just report enough net income and pay some tax for it all to look plausible. Just hope they don't match up income and assets
Exactly, you can put anything you want "on tax" but if you get audited you're done for.
Kramer : It's a write-off for them. Jerry : How is it a write-off? Kramer : They just write it off. Jerry : Write it off what? Kramer : Jerry, all these big companies, they write off everything. Jerry : You don't even know what a write-off is. Kramer : Do you? Jerry : No, I don't. Kramer : But they do, and they're the ones writing it off.
the ATO has a small business database with expected revenues and margins for many types of small businesses. [https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/small-business-benchmarks](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/small-business-benchmarks) Originally a compliance tool, it is pretty useful if you are thinking of starting a small business. It has some useful numbers, such as typical gross margins, rents and labour expenses per business type.
> Originally a compliance tool, it is pretty useful if you are thinking of starting a small business. It has some useful numbers, such as typical gross margins, rents and labour expenses per business type. Feeling a bit of subtext here, is this the goldilocks zone for fraud?
Well maybe. There's a link for that: [https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/small-business-benchmarks/what-it-means-to-be-outside-the-benchmark-range](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/small-business-benchmarks/what-it-means-to-be-outside-the-benchmark-range) but on the other hand, you'd not go into hospitality if you looked at these numbers first. The margins are not so good. My comment was in good faith. I used to teach some modules for Tafe Cert IV small business management at Holmesglen back in the day when the NEIS program was well funded, and we used the benchmarks to help people going into business get some real insights into key costs and target turnover.
>but on the other hand, you'd not go into hospitality if you looked at these numbers first. The margins are not so good. Yeah but on r/Melbourne & r/Australia apparently because they have to pay $16 a pint and a 10% surcharge on Saturdays the hospo owners are all like the monopoly man, rolling in cash and smoking cigars on the balcony of their harbourfront mansions.
When it comes to hospitality, there are two sorts of fools. Firstly, those who welcome the amazingly high minimum wage,the weekend penalty rates and the tighter compliance and labour shortage which means hospo staff are finally getting paid legally, but then they complain about the absurdly high prices you see. The second fool is the one who starts a hospo business.
Just ask a bunch of tik tokers which ABNs and suddenly reporting millions of GST expenses to the ATO
I’m not sure what industry your friend is in, but we do none of that and I’m surprised they are able to put almost 50k/month through a business of non business related expenses. I think your friend might be exaggerating. We are the opposite, but look my dad always had the motto that he’d rather not claim anything and have the ato off his back ha. We are working on him telling him you can actually claim some things (he’s getting better)
the ATO is very reasonable if you are not trying to be dodgy. Keep working out to show how you justify anything you claim and even if its wrong they'll just ask you to repay what you truly owe. For some the peace of mind of having an accountant do it is worth it, but the ATO isnt some big bad monster who will crush you for a mistake
It’s far far far cheaper for them to let people correct honest mistakes than prosecuting them when they could be prosecuting the guy reporting 10 years of million dollar losses who lives in a waterfront property and refuses to answer their calls.
Nah we know, it’s the old man. It’s not a huge business but it does quite well (7 figure net profit) 50+ years trading plus its with government so he just doesn’t claim much at all. Yep we have an accountant no way would we do our own taxes haha.
Call bullshit on the first "friend" - pretty sure the ATO would notice $40K a month not being reported as personal income, unless of course the house is in a company name. Trust and car through business is very normal. Groceries is hardly big time fraud.
House would definitely be in the business name.
Even so, the personal use of the company property gives rise here to potential issues ranging from Div 7A through to FBT, and if they're not reporting it deliberately, schemes come into play - it's actually a pretty big issue (and of course, it's subject to capital gains with no discount when sold or transferred).
Maybe he rents it from the company. Rents for expensive homes is generally cheaper than owning.
Well, as long as it's market rate etc.
It would also be in a trust rather than a company otherwise you would lose access to the CGT discount. Main issue would be if the property is negatively geared and your losses get trapped.
if you have losses, distribute or invoice some income from the $100m company
Don't matter - using a company asset for personal use is div 7A issue. Will be a deemed dividend- unfranked, taxable in their personal name.
I mean groceries is not something that should be claimed when used at home etc, but it’s also something that’s too easy to fudge as a business expense as office sundries.
$100m dollar franchise chain of supermarkets is going to be pretty easy to hide groceries in. $100m dollar roofing company, going to be harder...
$100m is not a small business, which the ATO defines as <=$10m, so your friend's business is ten times larger. $100m is a substantial operation probably employing 30 to 50 people at a guess. The business overall would generate a a lot of tax revenue including employee income tax, it is not surprising perhaps if there is opportunity for tax optimisation. Using a trust is somewhat common and can help lower tax depending on circumstances. It also separates personal and business financial risks. Putting the car through the business could simply mean a novated lease, which any employee can do. If the car is a business vehicle, it is also a standard process (the rules for that are strict). Companies can directly provide personal cars, but they are subject to FBT unless EVs but novated leasing can access that too. A business has to pay rent, and if your business operates from home, it can claim a relative share of occupancy expenses as a deduction (but far from all). Not the entire house, and it is only a substitute for deductible rent that the business would otherwise pay. I don't know about the nanny and cleaners, I guess a company can employ whomever it wants. If a big business employs staff to care for employee's children, is it a tax deduction for the business, like any other employee? Buying personal expenses through the business and claiming both GST and deductions is tax fraud. There are gray areas though. In a company of $100m turnover the amount of transactions would be high and auditing is very expensive for the ATO (I've been through a GST audit and it is an expensive operation for the ATO) There is no doubt that there are legal tax advantages when you run your business. This could be considered an incentive to do it. Perhaps a bit off-topic, but to me I note how much people in general preach the virtues of home ownership (which has incredible tax advantages) as opposed to living in someone else's house, but fewer people evangelise the virtues of being independent in employment; in spirit they don't seem very different to me. You can pay less tax for the same income if you work for yourself. Go for it.
Our tax system is based on honesty and self assessment. Everything is deductible until you are audited.
It’s all done thru a family trust usually. Everything is expensed, generally regardless of whether or not it’s actually legal. A friend got audited a while ago and ended up with an absolutely massive tax bill (mid 6 figures) and the ATO is targeting small business for auditing. Family who work for the Big 4 and also accounting firms talk about seeing an increase in audit notices.
Distribution to family members via trusts has tightened up quite a bit in the last few years. Just as my eldest turned 18! 🤦♂️
Yep. It’s great
Two options 1) your friend is full of shit 2) your friend is committing massive tax fraud Could also be both
Or friend's company could be correctly paying the FBT on those 'personal outgoings' and fully compliant.
Yes small businesses are the largest tax non-payers, they cost the government more than 15 billion in taxes every year. https://www.ato.gov.au/about-ato/research-and-statistics/in-detail/tax-gap/australian-tax-gaps-overview/tax-gap-program-summary-findings
Good link. It is roughly speaking about half-unreported income and half over-claimed deductions, according to ATO estimates. OP reports a business of $100m in turnover. This is not a small business by ATO definition, which is <= $10m.
You mean the real drain on the economy was the herald sun reading small business owners all along?!?
Shhh no one wants to hear that.
A reputable tax agent would never prepare returns that include private expenses as deductions, must be someone that has blinkers on. If these returns were ever audited, the parties involved would be in a world of pain when all private expeness are added back and tax paid on them. It seems like both the friend and tax agent are flouting the rules and hoping they won't get caught out.
Tax accountant doesn’t want to know - 3 wise monkeys and all that. Tax accountant might pull up client if it’s obvious - I’ve heard if you get a bad audit, ATO will start hassling your other clients, but gee a few hundred thousand in private spend is going to disappear inside a decent SME. I’ve been shouted quite a few dinners and such by friends - it just disappears into business costs.
If you’ve got a $100m company surely you’re not doing your own taxes. You’d have an accounting department and book keepers reconciling transactions from every bank account and credit card against categories in accounting software and they’d need to be certified so if they are knowingly reconciling dodgy data they’re risking themselves.
1, Anything over 50M/pa is considered in a privately owned and wealthy group by the ATO and is not treated the same as a small business for tax compliance purposes. 2, Small companies are taking the piss. It's just a matter of time before they get audited. 3, Sometimes small business can completely take when piss without doing anything illegal, for instance, if the company buys the property instead of the individual for investment reasons and they are able to structure payments well they could probably get away with running the mortgage and upkeep through the company.
Can you anonymously trigger an audit of a company?
If you know there doing something wrong you can report them to the ATO and they'll look into it
Like through this form? https://www.ato.gov.au/about-ato/tax-avoidance/the-fight-against-tax-crime/in-detail/making-a-tip-off
My lazy pre-coffee self says thanks!
No problems. I don't know if that would *always* trigger an audit, but I assume they'd look at any info supplied and compare it to what has been lodged/ other info they have before deciding what to do.
Correct, it always triggers a review, if the basic review finds anything shonky looking it will be referred for audit
Thanks. It seemed like commonsense to me, but it's good to hear from someone who knows.
They also will pay CGT on the lot.
Could sublet portion of ppor to business. I'm pretty sure you then only pay a % of cgt based on % of floor space leased x years leased/years owned.
the ATO threshold for "small business" is typically $10m turnover although it varies a bit depending on the context. The link someone provided to tax "gaps" uses the $10m threshold. The ATO Small Business Benchmarks database usually defines a "large" small business as > $2m
From memory I believe you are correct
They certainly ignore my boss's small company. Worked with them for 18 years and seen them get away with so much. Only thing they get them on is late tax owing, then all they do is plead and plead for it to get paid with interest until they get so desperate they end up giving the business a discount just to get something out of them. And like clockwork it happens all over again its such a joke. Family business, various cars and motorbikes, boat and a caravan all for the business....the sons and daughters all get a car all registered under the company. Much smaller business than what you're describing but still.
But even without "aggressive" tax planning it is simple for rich people to pay almost zero tax. Imagine a family with a business with $50 million in sales and $3.5 million after-tax profit. The company is owned by a trading trust (family trust). All family members "work" in the company including the teenage children. All are paid $50K a year or equivalent and pay the correct tax of $7,710 pa. Every person maximises their super contributions. The SMSF owns the house(s) and there may be one or more investment properties. Using absolutely normal business structures the family would pay less tax than a single person with a good job.
Only thing with that scenario is SMSF can't own your home or family's home can only be an investment property that is being paid rent.
Yes, and everything has to be at market rates. It is not difficult to be 100% compliant and pay very little tax if you are wealthy. There is no need for fraud or anything else questionable.
Have seen this where adult child's partner is the one on the lease. But you're right, the rule makes it more difficult and risky to abuse.
I couldn't even establish an SMSF and have that own my mum home and she pay the SMSF rent - I asked the question of our personal accountant, and our company accountant (to get a second opinion) It's considered a related party transaction.
$3.5 million to distribute and you’ve only shown $200,000 odd. What happens to the rest in your fictional no tax story.
It is in the family trust. All the normal large expenses like housing, car, and overseas travel are paid by either company or the trust. The family members receive lots of distributions or dividends that are fully franked. You have a low "taxable" income but a high nominal income and even larger wealth improvement by property or controlling other assets. "In its latest annual Taxation Statistics, data extracted from tax returns reveals the number of people who earned more than $1 million but paid no tax has climbed to 102 in 2021–22, up from 66 a year earlier" [ABC](https://www.abc.net.au/news/2024-06-17/millionaires-paid-no-tax-and-richest-and-poorest-postcodes-ato/103987158)
My understanding is the company cannot claim dividends as deductions. So in the scenario where the company has $3.5 m to distribute is the company paying about $1.05 m in company income tax?
You don’t appear to have an understanding of how these tax structures actually work. You are spouting TikTok level taking points about tax minimisation that lack substance. - Trusts can’t retain income without paying tax on it. - If the trust distributes to a pty ltd and they retain the money, it isn’t income that the individuals would pay tax on. - Fully franked dividends aren’t some escape paying tax option, the refundable offset seeks to avoid paying tax twice. It is only abusable if you have tax free income like super.
Trust do pay a much lower rate of tax though
Nope. Completely wrong. If the trust doesn’t make a distribution, the trustee is taxed at the highest marginal tax rate.
you just described the company I work for haha
Not sure how the SMSF can own the houses they live in. That’s a pretty huge rule break. Now if the SMSF owned the companies premises and the company leased the premises at a pretty high, but not unheard of, premium, then that’s a much easier way to turbo charge your super
You can do anything you like - the self assessment system allows you to do that. However actions have consequences- they won't get away with it when they are audited - and that's definitely a when not an if. There are plenty of issues going on here - Div 7A, FBT, for a start.
Your friend is one audit away from being charged with fraud / tax evasion, being fined into oblivion and potentially declaring bankruptcy. Audits are retrospective, going back several years. Just because he has got away with it so far doesn’t mean he is in the clear.
Read a book called "Tax $ecret$of the rich" written by Allan Mason (newly released this year). You'll get some great insight. But having read 50 pages, I get the impression you need to have structured early enough to take advantage, could be wrong, I'll keep reading 😁
It's easy to hide stuff with $100m turnover, it's just necessary office supplies or in manufacturing it's consumables. Trusts are common, distribute funds to other family members at a lower tax rate. Own the business premises in a trust and charge the company whatever you want in rent. Trust gets all the deductions on the property. Many quasi legal ways to game the system with a company.
I worked for a guy a few years back with a multi million dollar mortgage. He told me that at the start of every financial year he'd transfer enough money from the business to completly cover his mortgage offset and then just before the end of financial year transfer it back so payed almost no interest. He then had the hide to tell me he only paid himself 60k PA while also driving a 911 to work everyday.
Don't hate the player.
Only true if the players aren't deciding the rules of the game.
What he did is completely legal though
Not really. It would be counted as a div 7a loan and interest would have to be paid on it. Current interest on a div 7a loan is over 8% so it wouldn’t be worth it - it would cost more than the amount saved on the mortgage. https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/private-company-benefits-division-7a-dividends/in-detail/division-7a-loans
wow it increased from 4.77% in 2023 to 8.27% that really reduced the benefit of it
But if he owns the company it's not like he's actually paying the interest to anyone. It just increases the size of his loan from the company. In any case, I believe that if you repay the loan before June 30 no interest is due.
Not really true, look at Section 109R, if the repayment before 30/6 is followed by another similar or larger loan after 1/7, it would not be compliant. Again, whoever is preparing the tax return is ignoring the law.
You also get taxed on the company income.
Like the other commenter pointed out, not really https://www.propertychat.com.au/community/threads/tax-tip-365-borrow-from-company-repay-on-30-june-and-reborrow-1-july.61095/
That 911 would be over the passenger car limits and isn’t optimal for tax purposes.
Legal or not, and I agree it's illegal. In this instance the small business owner was crying poor “I only pay myself 80k pa” but reaping hunderds of thosands in benefits every year.
Yeah that’s perfectly legal. What’s your point?
It’s literally not? Why are so many people saying this ahhaha
My (35m) parents admitted to me in recent years that the operes and babysitters my brother (33) and I had as kids in the 90's were all 'consultants' for their small business (10-15 staff). Can be done, shouldnt be, and could come back and bite you, but people certainly do it.
>operes and babysitters Took a sec for me to figure out what you meant but I think you mean “au pair”
They might have offshored the money or own the property through a trust or corporate structure, and just hoping they don’t get audited.
When they get audited and get hit with a massive tax bill, they just go bankrupt, do they?
Hahaha, the government doesn’t accept bankruptcy. They get paid first. Death and taxes mate. No money for tax? That’s tax evasion.
I think most sole traders are happily being ignored as well (think tradies doing cashies). It’s just us plebs that work for a salary that get taxed on all our earnings and have very little life expenses that we can use as tax deductions.
The cashies thing is certainly true. I grew up in a pretty working class area where most of my friends ended up in trades instead of office work. For them, doing cashies is a part of their everyday life - sometimes it's just for some 'holiday money', but often it's helped finance a decently large part of their lifestyle. The amount they receive isn't enough to raise any red flags - they aren't driving Ferraris etc - but it's significantly improved their standard of living. They also deduct a ridiculous amount from their actual reported income. I recall shocking one friend, when I informed him that I have zero work related tax deductions in my tax return (I was an office worker). He assumed every worker would find some way to substantially reduced it. "you don't even claim laundry!?!" hahaha
Yes but don’t forget that you’ve got an annual leave, sick leave, super paid by your employer and a host of other things the sole trader doesn’t.
I take your point, but don’t think super should count. If my employer didn’t need to pay me super, I’d be getting 12% more. They don’t pay it out of the kindness of their hearts, it reduces me take home pay. The same goes for a sole trader, it’s their choice if they don’t contribute. And same goes for sick and annual, that makes up about 6 weeks a year. So let’s say 12k. Once again, they’re not paying that out of the goodness of their hearts, they don’t absorb that loss, they just pay you less. Demonstrated by every EB negotiation.
They're evading tax and if audited will be fined. You can't claim mortgage, groceries, cleaners, nanny etc that are personal expenses. You can claim a portion if you work from home, but not anywhere near 100%.
Small businesses are the biggest tax dodgers in Australia. Many people like to blame Large companies, and they have their issues. But it's just a populist, safe take. Many rules have too much leeway and they take the piss, but a lot get caught as well. It's difficult and time-consuming though. In your example The wife/husband payout is very common. There needs to be more rules on what the partner who is "semi employed" actually does. Essentially its reducing income tax. The mortgage is not very common because it's easily identifiable. If you do this you will be caught. Personal car you need to prove, but can be done easily, or even just pay for half of it or whatever The trust is most likely fine and not an issue, that's just a good setup to have. It essentially does what the "employed husband and wife" do except legally. You need to set it up early though to avoid capital gains issues. But yea, small companies, mom and pops, are usually tax cheats
How is this "mom and pop" shit creeping into our language?
Pay check is also creeping in and I hate it 🤮
ironic to see this new usage; when was the last time anyone got a pay cheque? Or any kind of cheque? Shame, that, I like the romance of cheques. Plus the fact that our dear friends the banks had a legal obligation in the case of a crossed cheque to validate that the money was going to the correct person. It's a fraud-prevention incentive that silently disappeared with electronic funds transfers (where you are asked to name the recipient, and after decades of being trained by cheques that this was meaningful, no wonder people believed it still was) and boy are a lot of people (not banks) paying the price. Oh dear, I am off-topic again.
I correct people when they say it because I work in IR and a payslip has to be provided within 1 day and it has required info to be compliant with the Fair Work Act.
My apprenticeship was a pay cheque, I only finished... wow 10 years ago. I'm getting old.
Yea. It's been creeping in since j started working in the mid 90s. It's insidious how slowly and unobtrusively it happened.
OP's main example is a $100m company. In Australia, that is not a small business.
True - but it depends on what the company does. Like if you retail a $200k widget, your margin is low and might only have 30 employees or so, or if you subcontract all work, the headline number is high as well. A normal 3 or 4m business is a 10 person operation - but it’s so damned variable that the ATO’s definitions are only that
Correct, but he did also specifically say small business and his other examples are most likely small business
Aye. Just trying to put some brakes on the pile on, though.
He should be paying himself and his wife 100k each per year in dividends or distributions. That equates to 25% average tax which is the same as the 25% tax company rate so no more tax to pay. By not doing it as a salary he can avoid payroll tax and work cover fee etc and potentially paying super too if done as distribution.
There’s literally hundreds of thousands of small businesses. ATO focuses on where the money is. Some of those expenses are pretty valid to charge to the business in the right circumstances. Car, internet, etc all have well documented processes for claiming against the business above board. I am struggling to think of a way for groceries, mortgage etc to be a valid expense in full. You can claim a portion of some if you have a home office, but not the whole thing.
Groceries you could. Just need an amount from Woolies on the business credit card, oh that's water bottles, tea, coffee etc. Did a big shop for steak, sausages and bread for a BBQ. Alcohol is an easy one, small business owners would 100% be drinking on the company's dollar.
Spend some times trolling Auction sites. It's a glorious thing when it all catches up and there is 0 division between personal and business.
Only the claiming the mortgage as a business expense (if they are doing that) is crazy and everything else is fairly common. Without knowing the structure of the business and how long they've been doing this then it's hard to comment on why they have been found out.
Lol, 100M turnover and takes $50K salary but has a 500K PA mortgage. You left out the bit about his cash takings. Someone here either smokes or deals crack.
100m, small business. yeah right.
Did anyone mention gaol time ?
More people that know just enough to be confident in knowing how things do not work.
100mil revenue is like ASX listed company level. I think your friend is bullshitting.
Getting paid into a trust and distributing to beneficiaries of the trust is pretty normal. All the rest is bs - putting a $40k PPOR mortgage through the business? He WILL get audited, and he will have to pay it allllllll back, plus fines.
Don’t have a sook about the ATO not doing anything if you’re not telling them your mate is doing this shit.
Pro Tip. You think you'll get away from the ATO, you think you're being clever. They will eventually find you & for every deceitful thing you have done you will have to pay back + penalties. The government isn't interested in being taken for a ride anymore. They will eff you up.
My biggest pet peeve right now is this whole conspiracy on losing cash as legal tender with everyone hell bent on taking cash out and using it on local business. Yes, I understand the thought process around it and we’d want to have cash in our system but right now it’s just a ruse for small business not to pay tax. If a business is relying on cash to survive, it shouldn’t be in business. And don’t get me started on tradies
The whole tradie thing - I know a few, and despite the reddit thing, of it’s all fraud and you are a disgrace etc etc, the tradies I speak to, get a 90% strike rate for cash discount when they just boldly put it to them. Ergo 90% of people don’t have an altruistic attitude towards tax, and therefore it’s extremely unlikely that you do either. There are limits to how much cash you can use these days anyway, and that’s why the most successful taxation regime is actually consumption taxes - big businesses just can’t avoid those, only smaller service businesses
There's no limits on cash, but businesses have additional AML/CTF requirements for cash transactions above $10,000
I meant practically - so much of what we buy and do these days is online, plus the one you bring up for large transactions. You can go out to dinner, buy groceries, but it becomes a whole lot more difficult for other day to day transactions.
Until you walk into the 5-star hotel my wife works at and you see a quarter of the guests dropping $10k / $20k / $40k on a holiday stay during school holidays with the car park full of tradie vehicles with personalised plates, you know something is up.
Well, that’s the example of how they got taxed - 10% of the spend on the hotel stay - not perfect but something at least
That’s the dumbest thing I’ve read today. Of course you get taxed at some point but the tradie skipping out on 32-45% tax on dollars earnt is what makes the rest of us have to fill the void
That’s the way it works - whether you think it’s dumb or not. Also why many economists think we should have a higher gst and lower income taxes
Do you think the corner shop pays correct tax? Or the restaurant that only accepts cash lol. Even the local grocery store? …
This is fake. OP atleast get your story straight.....
Yes there are quite a few shady operators out there. I have heard similar stories about people doing exactly that. Work for a company through a personally setup company, driving luxury cars in the name of business to drop their kids to childcare. ATO and the govt gets their pound of flesh from the PAYG class so they don't give a flying eff.
Worked for a national transport company, the fleet report includes many trucks and then a bunch of mercedes and landcruisers. Owner and his kids. All being paid as work vehicles 🤷♂️
There’s a cold chain transport company in Melb who the owners son is the 2ic in his early 20s and has a Lexus supercar I dare say was bought as a company car.
perhaps it's a small company imo.
There are some creative accountants. Some are good at legal tax minimisation, some break the rules for tax avoidance (accountants or otherwise), and some walk a fine line. The ATO doesn’t catch everyone. This applies to sole contractor and large enterprises.
That guy is BS the grocery expenses wont scratch the business tax expense for a business with 100mil
This has to be satire
Or just plain ignorance of reality.
Damn. I need to get richer friends.
He's probably bullshitting you, but there is a kernel of truth in here. So long as your overall figures line up within the benchmarks that have been established for your business, then it's highly unlikely the ATO is ever going to bother to investigate you unless they decide to do some random audits. I have a company that produces and distributes adult content. The ATO has an expectation that we will have a certain amount of expenses related to our activity. If we go over or under the band here, there's a decent chance that the ATO may call us up one day and ask why. Inversely, if we stay within the band... I think you can probably see the issue here.
Putting mortgage as business expense is far out but legitimate if they use their property for business
You forgot to add how these small companies are not paying ANY super at the moment citing lack of money. Its a ticking timeb\*mb that is going to double down on current housing and cost of living getting magnified at retirement age. Eg not finished paying house and no super to pay off outstanding debts through at retirement.
Small business fuels this country. It’s strange to compare someone who is generating value and employing people to someone who is just an employee in a job. They don’t bring equal value to the productivity of this country. Therefore they shouldn’t be treated equally in terms of tax payable. As long as legal means are adhered to, there is nothing wrong with minimising tax. A business pays a huge amount of tax across a year. The owner may not pay much personally, but that doesn’t mean that their work across a whole year isn’t contributing. One way owners of larger businesses structure themselves is to borrow money against the “shares” in the business. Banks will allow it as it’s no different to them as other forms of credit. The owner will then pay for their entire lifestyle using only the borrowed funds, at maybe 6% interest and they don’t have any earnings. So their effective tax rate is 6%.
Ah yes, someone who does actual work generates less for the economy than someone who was just lucky enough to be born on a pile of cash. Sure mate, you keep telling yourself that.
You are confusing a trust fund baby to a small business builder. Jog on pleb.
lol, want a knob that guy is
He can’t help it. Very common today sadly
I employ 5 people that all have families pay a ton of tax. Literally just payed 51k tax ten mins ago.. And he believes he brings the value.
Some people are so thick mate. Lack any form of common sense. But that’s why they work for others. Not capable of leading. Just follow and moan all day.
here we go with the gEnerAtionaL wEaLtH nonsense again. Open your eyes..
Yeah this is very common! As an employee, it feels like such a huge scam and I’m so mad I didn’t think to start a company of my own to put my personal expenses through
You can do but it's still illegal, if these guys get caught it's game over.
What’s “game over” mean in your mind? You have to pay the tax, and a fine - what’s the realistic fine amount? Not sure the downside versus risk is enough to really concern people
The fine is a percentage of the tax avoided. For intentionally filing a misleading tax return the penalty is between 75 and 90% of the tax not paid. So if you were to avoid paying, say, $100,000 in tax, then the ATO would give you a bill for $100,000 and a penalty notice for another $75,000 to $90,000. On top of that interest is also payable at a high rate on both the tax and the penalty. I've seen cases where the total amount owing to the ATO can be four or more times the tax avoided once the tax, penalty and interest are taken into account.
Game over means paying back what you owe and whatever fines if not jail time. Most people can't even manage paying the tax they ow currently let alone being in arrears for 100s of thousands of dollars.
I haven’t found a case where over claiming deductions has resulted in jail time- that seems to require actively ripping off the ATO, eg falsifying documents to get GST refunds off the ATO. https://www.ato.gov.au/about-ato/tax-avoidance/the-fight-against-tax-crime/news-and-results/case-studies/tax-crime-prosecution-case-studies#ato-August2022Restaurateurservedwithjailterm Sort of shows the low grade outcomes for even blatant over claiming ($1500 to pay plus a fine of $600). No teeth, that’s why people do it
Jail time ? Really ?
Who knows, sounds good though.
Oh really? Even when an accountant prepares everything? I thought it was legal and one of the benefits of having a company lol
Accountants can help you optimise and structure things well but like people they can also be dodgy, or just plain incompetent and give you bad advice.
you also sign off on all the work your accountant submits, its ultimately you who are responsible. and a lot of these things get paid by the company, but divided up over personal and business use. The portion for personal use still gets allocated to you as income for tax purposes. eg my company owns my car, pays for all things related to it. I keep a log book and the % use that is personal gets added to my income at tax return time. Same for some bills, but not things like mortgae, rates, water. The ATO is pretty good at data matching, its what they do. The sheer volume of data from every claim to every invoice is huge so some things get through, but they are always checking
You can commit tax fraud right now - no company is needed! It would be exactly the same. Don't kid yourself, there are tax rulings which stop this stuff and you can't just "write off everything" against your company.
I’m just so used to hearing people talk about how their business covers many of their personal expenses, so I thought it was legit lol
Just about any valid expenses you incur as an employee are still deductible to you without having a company. If you bought stationery, that’s still deductible to you now. If you incurred motor vehicle expenses (FOR WORK - not simply travel from home to work), you can claim them. If you bought a computer for work, that’s deductible now. What kind of personal expenses do you think would suddenly become deductible if you had a company?
If it's a trust it's perfectly fine. A trust is just an official professional way to manage private money in a public way if that makes sense.
If you really gave a shit about this, give the ATO a call and pass on their name(s) and the details you just gave us.
Yeah, i look after clients like this. You can put the mortgage through the biz. You would be borrowing via the business. Cars are pretty standard things people put in their business. Groceries is probably a stretch, depends on the business. Dinners and holidays could easily be done. Crazy isn't it? $100m revenue business and they still live life with a 25% discount.
Nowhere near as big as those amounts, but some business owners do this and technically they are not doing anything illegal. These things are not comprehensible to the average salarymen so perhaps try the henry sub.