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​How to Re-Invest Profits to Save Tax and Grow your Business in Australia

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Paying taxes based on income and profit is an inescapable part of running a business. The more your company earns and the higher profit you make, the higher the taxes that you need to pay. In order to work around this part of the business world, most companies choose to house their profits in an off-shore account that is not covered by the local laws and taxation scheme. However, going down this route may pose problems for your business, as the country’s taxmen are slowly zeroing in on companies who have taken up this habit.

Fortunately, you have various options when it comes to growing your profit without overly increasing your taxes. The secret lies on the various re-investment options that are available to you and your company. Here are some of the re-investment options that you may explore and use in order to grow your company without losing a big chunk of your money to taxes. Go through your options and see which one will offer maximum benefit to you and your investors.

Check Out Dividend Reinvestment Plans

If your company still has not started offering dividends reinvestment plans to your shareholders, then it is safe to say that you are losing a sizeable share of your profits to taxes. In order to save your shareholders and your company money, you should get into the process of allowing your investors to use their dividends to re-invest on additional company shares. This will be in lieu of them receiving regular cash payments, which would be taxable.

Dividend reinvestment plans allow all parties involved to save on taxes because the transaction is not covered by the country’s existing tax laws. Shareholders are more likely to benefit from this kind of re-investment option as well, because shares and stocks acquired through this scheme are usually offered at prices below the current market level.

This kind of re-investment scheme need not be a blanket process for all the shareholders of your company. You can simply place the offer on the table and see which ones among your investors are interested. Though merely optional, using dividend re-investment plans should be highly encouraged among the members of the board, especially if a handful of investors are willing to make this move, to ensure fairness and consistency for all members.

Re-Invest using a Mortgage Offset Account

If your company has different mortgaged properties, you can sign up for mortgage offset accounts that will allow you to re-invest your profit and to cut the money that you would otherwise spend on paying taxes.

Using a certain portion of your proceeds to pay for your mortgaged properties will allow you to minimize the interest costs that you need to cover and will enable you to effectively minimize the length of mortgages set on your properties. You will also spare yourself from the hassle of paying taxes on your company’s savings account by shaving off a certain amount from your base line.

Place your Profit in a Family Trust Fund

Instead of housing all of your profit in your company’s investment account, you and your shareholders can choose to house your funds in a separate investment scheme that will act as a trust fund for the whole group. In this kind of setup, a certain group of people, who are normally referred to as the trustees, will manage and control the funding account on behalf of all investors.

How can this scheme help investors save on tax? Essentially, the group can pinpoint the members who belong to the lowest tax bracket and have them act as the fund’s trustees. By doing so, those who fall under higher tax brackets will be able to pay taxes at a lower rate, thus helping them to save money effectively.

When going down this route, it is imperative that you and the rest of your shareholders are able to place full trust on the personal and professional relationship that you have with the individuals who will act as trustees. They will, after all, be in control of your assets. See to it that you elect and choose these personalities wisely.

Re-Invest on Investment Bonds

The option of using investment bonds is not a new thing on the market, but this option is only slowly gaining popularity and mileage recently. In the past, placing money on investment bonds is an option that is often passed over by investors because the roster of investment options used to be quite limited. Thanks to the booming market, investors can now take their pick on a wide range of underlying assets that they can invest in.

Think of it as investing on other kinds of properties, except that you will be investing as a group, instead of doing it individually. As such, all profit and proceeds that will result from dealings that fall under this kind of investment category will also be divided among the original investors.

The best thing about re-investing your money on investment bonds is the fact that the earnings need not appear on the individual’s or the company’s tax returns. This means that parties who choose to place their money into this type of re-investment option will be able to skip paying taxes from a certain percentage of their profit.

Acquire Assets through A legitimate Investment Company

As a general rule, assets that are acquired through an investment company will not be taxed for more than 30 percent. A legitimate and trusted investment company can help you manage your portfolio and keep your current portfolio defensive in order to maximize your pension portfolio for high growth rate and lower risk profile. Your investment company can also help you limit your capital gains tax to no more than 10 percent.

In addition to this, you and your shareholders will also be able to deduct your 30 percent company tax from the marginal rate that you need to pay upon the liquidation of your assets. This means less tax and more value for your investment. 

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