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A $17,500 Tax Win In 90 Minutes · My Accounting Advantage

• 0:00
  Speaker: Hello and welcome back to the podcast My Accounting Advantage featuring Mai Harris.
• 0:05
  Speaker: Today we have a special request as people are asking for real-life case studies from the trenches.
• 0:13
  Speaker: That's happening in the world of tax planning, saving, and how do you hang on to that precious income that you spend all your time doing?
• 0:20
  Speaker: And today's a beauty.
• 0:21
  Speaker: We have a $17,500 tax saving in 90 minutes.
• 0:26
  Speaker: Well, I'm gonna bring Mai Harris into the studio.
• 0:28
  Speaker: Mai, welcome back.
• 0:30
  Speaker: Thank you, Lee.
• 0:31
  Speaker: This is an amazing story.
• 0:33
  Speaker: Take us into it.
• 0:34
  Speaker 1: Yes, so this week uh I had a client who came in and she was feeling quite depleted because things uh didn't go very well with her business, unfortunately.
• 0:48
  Speaker 1: Quite common.
• 0:49
  Speaker 1: It's very common because at the moment, you know, um there's uncertainty in the world, and also people who have been in business for a long time also feeling the effects of that because it's an uncharted territory, really.
• 1:06
  Speaker: And it's also a lonely space.
• 1:08
  Speaker: I remember when I had 22 staff and things weren't going well, and you're thinking, how will I pay all the wages this week of these wonderful people that turn up to our company and contribute their time and I can't cover their wages?
• 1:21
  Speaker: It's a dark space because you can't talk to anyone, they'd all panic.
• 1:24
  Speaker: So you end up carrying a lot of things, and for any of our small businesses listening out there, you're not alone.
• 1:32
  Speaker: This is tough.
• 1:33
  Speaker: It's hard, it's one of the hardest things you ever commit to do is run a small business.
• 1:37
  Speaker: But people feel such a failure because they think it's just them, because everybody else has got it going on right.
• 1:43
  Speaker: I know thousands of business owners, the ones who are level and tell you the truth, you always know because everyone can play something up, but that's not the reality.
• 1:54
  Speaker: Small business is not Facebook, small business is service.
• 1:58
  Speaker: It's about doing what you do, but it takes so much, and this is why this story is so important.
• 2:04
  Speaker: You can you can catch yourself down and it's affecting everything, yeah, but it does happen to everyone.
• 2:09
  Speaker 1: It does, and um, and that's the important thing is, you know, you've got to realize um sometimes, unfortunately, you try really hard, you've got to realize that okay, is it affecting my life and and how and whether or not I'm prepared to stay there in that space or I'm not.
• 2:32
  Speaker 1: And in this case, you know, um the husband and wife team decided that no, I think we had enough.
• 2:39
  Speaker 1: And that's okay too.
• 2:40
  Speaker 1: You haven't failed.
• 2:41
  Speaker 1: You just surrender.
• 2:43
  Speaker 1: Yes.
• 2:44
  Speaker 1: The important thing is so easy to get into an industry.
• 2:48
  Speaker 1: Get so easy into to get into a business, the excitement of having your own business as well that really sometimes, you know, clouded your thinking.
• 2:58
  Speaker 1: But you really need to go in with intention and you really know that okay, to what point that I should exit as well.
• 3:08
  Speaker 1: So it it goes both ways um when you go into business.
• 3:12
  Speaker 1: When are you ready to start?
• 3:14
  Speaker 1: Do you have the capital backup to start the business?
• 3:18
  Speaker 1: Working capital is so important when you start.
• 3:21
  Speaker 1: So you need to have a sufficient amount to start off with so you're not gonna feel the pressure, the burn.
• 3:26
  Speaker 1: And then the next the next thing is to understand at what point need to make that hard decision and say, enough's enough, and it's time for me to exit.
• 3:38
  Speaker 1: Because if I keep going, I could lose the house, or if I keep going, I will go into a mental institution or lose my marriage, you know, like it it's not worth it.
• 3:50
  Speaker 1: At that point, you go, okay, let's make a plan.
• 3:54
  Speaker 1: But our client came in last week and just went, no, that's it.
• 3:58
  Speaker 1: I just want to liquidate the the business.
• 4:00
  Speaker 1: I'm gonna sell the factory bay, just going to put all the money into the home loan, pay it down.
• 4:07
  Speaker 1: That's it.
• 4:08
  Speaker 1: We just that's that's what we're gonna do.
• 4:10
  Speaker: Pull the pin.
• 4:11
  Speaker 1: Just pull the pin.
• 4:12
  Speaker 1: Just sell everything and um just move on.
• 4:16
  Speaker 1: So what I did was I said, okay, let's just calm down um and um breathe and then you know, put a plan together because what you just said then it's okay, you've decided to exit the business, I will help you, but it may not be the best way to just, you know, go gangbusters on closing everything down, deregister everything.
• 4:42
  Speaker 1: We need to reassess whether or not we can do that right now.
• 4:46
  Speaker 1: Is there a plan to give you, get you more money?
• 4:49
  Speaker 1: How do we plan for the the cash that you receive from the sale of the Factory Bay?
• 4:57
  Speaker 1: And luckily, she actually um had a buyer.
• 5:02
  Speaker 1: So that was a yeah, so that was pretty good because um It's a good story.
• 5:07
  Speaker 1: It's a good story, yeah.
• 5:08
  Speaker 1: And I said, look, that's smart thinking.
• 5:10
  Speaker 1: So go see your advisor before you make such an important decision like that.
• 5:16
  Speaker 1: So in this case, we um sat down and um, you know, she booked in for a 60-minute session.
• 5:23
  Speaker 1: It went for 90 minutes, but at the end, she felt calm and she felt she has clarity and she has a plan to go on with, which was a which was very good news for her.
• 5:36
  Speaker 1: And she actually said to me, Well, thank you.
• 5:39
  Speaker 1: I actually came in here and ready to blow everything up, but um, you know, I now have a proper plan and I'm feeling calm about um doing this now.
• 5:51
  Speaker 1: So um what what I did in the 90 minutes, like basically just go through her, um I said, look, let's calm down.
• 5:59
  Speaker 1: I get it, you um the plan is um to go and get jobs and um your husband will be working for someone and we can close the business down when so that all the compliance are done properly for you, and then um you're not going to be penalized for um, you know, any unnecessary outstanding taxes.
• 6:23
  Speaker 1: So we've actually mapped that out.
• 6:25
  Speaker 1: Stop paying wages so that there's no more PAYG withholding tax bleed, which is you know the um tax on wages, so we don't do that anymore.
• 6:36
  Speaker: And payday super.
• 6:37
  Speaker 1: That's right, and then super um as well for the employees.
• 6:41
  Speaker 1: So, what do we do with that?
• 6:43
  Speaker 1: So we make sure that we have enough capital within um the business to accommodate for all of that so she doesn't have to put any more money in.
• 6:52
  Speaker 1: So that plan is in place.
• 6:53
  Speaker 1: So the business is taken care of, and then we set up a date of when it needs to be deregistered.
• 7:00
  Speaker 1: And the workers' comp conversation um we had.
• 7:05
  Speaker 1: So there's a lot of things that you need to consider before you um, you know, exit the business.
• 7:10
  Speaker 1: It's not just like, let's just close it down.
• 7:12
  Speaker 1: You can't do that.
• 7:14
  Speaker 1: You need to sequence everything and make sure that you know you clear your mind and you accept the fact that, you know, you have to do all the compliance stuff, uh, systematically move on.
• 7:26
  Speaker 1: So the next stage for her is this is why sequencing is so important, is sell the factory bay.
• 7:35
  Speaker 1: So close down the business and then you can sell the factory bay.
• 7:39
  Speaker 1: And she was so worried about um, you know, paying capital gains tax because she bought that factory bay 20 years ago.
• 7:48
  Speaker 1: Capital gains from the property is about $300,000.
• 7:53
  Speaker 1: Yeah, you should be worried.
• 7:56
  Speaker 1: Um, because that could be a lot of tax.
• 7:59
  Speaker 1: And so um I said, okay, let's um have a look at this.
• 8:03
  Speaker 1: When did you start the business?
• 8:05
  Speaker 1: So she said, Oh, the business started when we bought the factory.
• 8:10
  Speaker 1: I said, Oh, I said, beautiful.
• 8:11
  Speaker 1: So um, that was 25 years ago then.
• 8:14
  Speaker 1: She goes, Yeah.
• 8:16
  Speaker 1: And I I said to her, well, that means we can apply the um small business 15-year CGT exemption.
• 8:24
  Speaker 1: And she said to me, Oh, what is that?
• 8:28
  Speaker 1: I said, Oh, well, it's a um, you know, CGT exemption for business owners that's been in business for over 15 years, which means, and um, if you use the asset, which is the property as an active asset, you won't need to pay any capital gains tax if you sell it.
• 8:46
  Speaker: Wow.
• 8:47
  Speaker 1: Yeah.
• 8:47
  Speaker 1: Zero capital gains tax payable.
• 8:50
  Speaker 1: So she will receive the entire pro the entire proceeds.
• 8:55
  Speaker 1: Yeah, she can just take it.
• 8:57
  Speaker 1: So that's that's again is about, you know, think things through.
• 9:03
  Speaker 1: Ask your advisor, you know, um, before you do it.
• 9:07
  Speaker 1: Because sometimes you might be operating the business for seven years, but you need to be at least operating a business for seven and a half years to to receive the active asset CGT exemption.
• 9:20
  Speaker: You you could delay the people pulling over their cars right now, Mai.
• 9:27
  Speaker 1: Yeah, so it it could be only like just hold on to the business for another six months, and then you can apply the fifth um 50% active asset CGT discount, which could mean like, you know, $100,000 worth of capital gains saved.
• 9:46
  Speaker 1: So there's a plan.
• 9:48
  Speaker 1: The the key is to plan.
• 9:50
  Speaker 1: Okay, right now we can utilize the um the proceeds, the cash that we receive from the sale to reduce tax even further in the next financial year.
• 10:01
  Speaker 1: And she's like, How?
• 10:03
  Speaker 1: I said, okay, let's go back again to your financial goals.
• 10:08
  Speaker 1: You already have the SMSF set up for yourself.
• 10:12
  Speaker 1: What are your plans?
• 10:14
  Speaker 1: So she's around in her 50s.
• 10:17
  Speaker 1: So um I said, look, you can access your um super in, you know, in in less than five years.
• 10:25
  Speaker 1: So maybe we should invest that money rather than put it into your offset account in super instead.
• 10:33
  Speaker 1: Because let's face it, I talked about this in our last podcast.
• 10:38
  Speaker 1: Sometimes putting money into your offset account will cap your rate of return to the rate of the interest that you're paying.
• 10:46
  Speaker 1: So she said, Oh, okay, that's fine.
• 10:49
  Speaker 1: I'm listening.
• 10:50
  Speaker 1: I said, right, so why don't we you wanted to buy an investment property, correct?
• 10:55
  Speaker 1: And she said, Yes, um, we we want to with that money.
• 10:59
  Speaker 1: So I said, okay, put it into the offset account for the moment.
• 11:03
  Speaker 1: That will reduce the the interest.
• 11:05
  Speaker 1: But then let's plan to purchase the investment property in your self-managed super fund instead.
• 11:13
  Speaker 1: How do we do that then?
• 11:15
  Speaker 1: In order to do that, we can actually make contribution from the cash that you have straight to the self-managed super fund and claim a tax deduction.
• 11:25
  Speaker 1: So in that case, she could actually obtain the tax break by claiming the super contribution that she makes to her self-managed super fund, reduces her tax, and then the super fund is able to use that money to purchase the investment property.
• 11:47
  Speaker 1: So that's a win-win.
• 11:49
  Speaker: And that's how you save $17,500 in 90 minutes.
• 11:54
  Speaker 1: That's right.
• 11:55
  Speaker 1: So basically I worked out what would be the right amount of um super contribution, also using the carried forward super contribution balance to optimize, you know, the amount of super contribution that both the husband and wife can make.
• 12:14
  Speaker 1: So between them, because we used the carried forward balance, so it was worked out to be about $100,000, but they've received well over that from the proceeds from the sale of the factory.
• 12:27
  Speaker 1: We pushed that money over to their super fund, they claim tax deduction, and then under the um personal tax situation, um, reduce their taxable income.
• 12:40
  Speaker 1: And as a result, we saved a combined amount of tax worth $17,500.
• 12:48
  Speaker: And the most important thing I think you did, improve their lives.
• 12:53
  Speaker: So My Accounting Advantage slash therapist is very powerful, and you know, people do you end up locked, and you don't know what to do, and and you just and it compounds, you can't sleep the whole thing, and we're losing this, and compounds to a point that people bust, they bust up.
• 13:13
  Speaker: Yeah, versus it's not broken.
• 13:17
  Speaker: Mai had a sequence to it.
• 13:19
  Speaker: We're gonna work out better than we ever thought.
• 13:21
  Speaker: We can now just go and work for somebody else and not have, you know, we've done our small business for 20 years, let's go and work for somebody else and say, where are the Tim Tams?
• 13:30
  Speaker: And enjoy being an employee somewhere, but you didn't fail.
• 13:35
  Speaker: It's just timing.
• 13:36
  Speaker: It was time to surrender.
• 13:38
  Speaker: But with that sequence, that's a good exit.
• 13:40
  Speaker 1: Take a moment and then seek the answers.
• 13:44
  Speaker 1: And honestly, if your advisor's not giving you the answer and they just say, that's it, that's all I've got for you, maybe there are answers out there that you you need to go looking for.
• 13:56
  Speaker: 100%.
• 13:56
  Speaker: And that's why this podcast exists.
• 13:59
  Speaker: We want you to profit from that knowledge.
• 14:01
  Speaker: But Mai thank you for another wonderful week.
• 14:04
  Speaker: I'll see you next week on My Accounting Advantage.
• 14:07
  Speaker: Thank you for joining us.
• 14:08
  Speaker 1: Thank you, Lee, and thank you, listeners.
• 14:11
  Speaker 1: And if you like any more information about, you know, how to pause, protect, and position yourself, we've got a checklist available for you.
• 14:21
  Speaker 1: So get in touch with us at myaccountingadvantage.com.au or just DM checklist on my Instagram.
• 14:31
  Speaker 1: It's the_maiharris and we will send you the checklist.
• 14:37
  Speaker: Thank you for joining us.