A: You want to minimise the amount of tax you have to pay.
The type of income you earn will influence your structure, and is linked to the tax minimisation strategies you use. Your income might be active, passive or both:
Active income comes from a trading business, where you are supplying a product or service and dealing with customers, suppliers, workers, etc. For example, a building company is a trading business.
Passive income comes from investment activities, where you are doing little or no work, like having an investment property that earns rental income.
If your business is generating active income, your priority will be minimising income tax. You will likely also want to access Capital Gains Tax (CGT) small business concessions on the eventual sale of the business unless your intention is to pass it down to family.
If your structure is to derive passive income, you are likely to place more importance on the minimisation of CGT liability in the sale of the investment.
While it’s possible to have a business that will derive both passive and active income, it is often advisable to separate the two activities in two separate structures. First, this enables you protect the assets of one business against the assets of the other. Second, having separate structures for the different income types will allow you to minimise tax, as you can choose the most appropriate structure for each income type.
You can see now that it will make a difference.
If you need assistance to determine whether you existing structure is right for you or how to go about starting the right structure, please do not hesitate to contact us.
You will see the impact these changes have on your profit margin, your asset turnover and ultimately your return on assets.
Now you’re starting to really see where your business is financially and what you need to do to get you to where you want to be.
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Tony has 33 years’ experience as an accountant, and 13 years’ experience as a CPA. His first 18 years’ experience involved financial, management and operational accounting roles at a senior management level, in the security, transport, and forensic accounting industries
https://adpartners.com.au/wp-content/uploads/2017/08/logo.png00Tony Dimitriadishttps://adpartners.com.au/wp-content/uploads/2017/08/logo.pngTony Dimitriadis2018-03-26 20:18:312019-05-14 17:45:26Active vs Passive Income - Who cares?
Established in 2001, AD Partners is a boutique public practice Accountancy and Business Consulting firm situated in heart of Carlton, Melbourne.
We service all areas of Melbourne, and offer personalised service to business owners no matter how big or small.