What tax breaks do businesses get?

[Crazy Dazz]

I'm a CPA, with a B.Com, MBA, & JD, and over twenty years’ experience as a Tax Specialist in both Public Practice and Corporate.

Getting into business because some whacker tells you there are tax breaks, is the single worst reason imaginable.
30~40 years ago, before FBT and all the other “tax reforms”? Perhaps, but even then it was more a question of what you could get away with, rather than what was technically correct.

As I mentioned, as a PAYG employee you really don’t have much “choice” when it comes to tax compliance, but running a business does open up all sorts of avenues for tax fraud. Yes, ANYBODY can register for GST and start claiming refunds on your ITC, but why stop there. You don’t even actually have to spend the money, just make the numbers up and the government will send you the money. Of course this possibility HAS occurred to the government, they do conduct audits, and if found guilty of such blatant fraud you will go to prison. (In fact penalties for defrauding the government are generally the most severe.)

Citing Input Tax Credits as reason to go into business is beyond moronic.
How’s this for a proposition: Instead of spending $110 so you can claim $10 back, send ME the $110 and I’ll give you $50 back! Good Deal?

Yes, the rules on WHAT you can claim are slightly more relaxed when it comes to businesses, but mostly the advantage has to do with LOSING money. Also you can claim peripheral expenses that you wouldn’t have a use for without the business. So if running a business you can claim deductions for office rental, a photocopier & coffee machine, and a secretary. Things you wouldn’t need if you didn’t have the business.

“Companies and Family Trusts” are NOT businesses, they are legal entities. There are SOME advantages to using these, both for businesses and as investment vehicles, but again the rules have been drastically tightened. Such that many people not using them correctly can actually wind up WORSE off. Put simply, if you want to “park” income, use a company as the tax rate is lower but by and large you need to pay tax on the money when you take it out of the company. Family trusts can be used to split income, so if you have a spouse, adult children, parents, etc, with little or no income (and no social security issues) you can often use a discretionary trust to split the income, but there are complicated anti-avoidance provisions now that make this difficult to manage. There are also provisions for small business based on the personal exertion of the proprietor that prevent you putting the income through another entity.

As I said, if you have the wherewithal to make a SUCCESS of a business venture, then go for it. Its one viable way to get ahead of the curve, something you will struggle to do as a PAYG worker.
but “starting a business for tax breaks” (which was the OP’s question) is just nuts.
Furthermore, if you’re going to end up running a small 1-2 person business performing the same work that you would otherwise be doing as an employee, forget it. Over the years, I have seen SO MANY people who have risked everything, invested their life savings, to basically buy themselves a low-paying job.

For some people, running a business is a “lifestyle choice.” Some businesses will give you the flexibility to “work your own hours” or alternatively to work 70 hours a week (which you generally cannot do in a wages role.)