Tax Planning & Optimisation FAQs
Effective tax planning is about making informed decisions throughout the year, not just at tax time. The right strategy can significantly reduce your tax liability while keeping you fully compliant with ATO requirements. Here are the most common tax planning questions we receive from small business owners.
How can I legally reduce my tax as a sole trader in Australia?
As a sole trader, you can reduce your taxable income by claiming all legitimate business deductions, prepaying expenses before 30 June, making concessional super contributions up to $30,000 per year, and using the small business income tax offset (up to $1,000). You should also consider whether your current structure is still appropriate. Many sole traders benefit from restructuring to a company or trust once their income exceeds certain levels. Timing of income and expenses is also important, as deferring income or bringing forward deductions can shift your tax position. At BVM, we help sole traders across Sydney develop year-round tax strategies.
What deductions can a small business claim in Australia?
Small businesses can claim deductions for any expense directly related to earning assessable income. Common deductions include vehicle expenses, home office costs, tools and equipment, professional development, insurance premiums, accounting fees, marketing costs, and travel expenses. You can also claim depreciation on assets and may be eligible for the instant asset write-off. The key requirement is that the expense must have a clear connection to your business operations and you must have records to substantiate the claim. Expenses with both private and business use must be apportioned. Our CPA qualified team at BVM helps businesses in Oran Park identify every legitimate deduction available.
Should I pay myself a salary or take dividends from my company?
The choice between salary and dividends depends on your overall tax position. A salary is tax-deductible to the company and subject to PAYG withholding and super obligations. Dividends are paid from after-tax profits and come with franking credits that reduce your personal tax. If your company tax rate is 25% and your marginal rate is higher, a combination of salary (up to a reasonable amount) and fully franked dividends is often optimal. However, you must ensure any salary is commercially reasonable and that Division 7A rules are not triggered by informal drawings. At BVM, we model different scenarios to find the most tax-effective approach for each client.
What is Division 7A and how does it affect business owners?
Division 7A is a provision in the Income Tax Assessment Act 1936 that prevents private company owners from extracting profits tax-free through loans, payments, or debt forgiveness. If your company provides you (or an associate) with a loan that is not on compliant terms, the ATO treats it as an unfranked dividend. To avoid this, loans must be documented in a written agreement, charge a benchmark interest rate (currently around 8.27% for 2025-26), and be repaid within seven years (or 25 years if secured by property). Non-compliance can result in significant unexpected tax liabilities. Our team at BVM helps Sydney business owners structure their affairs to remain Division 7A compliant.
Can I claim my home office as a tax deduction?
Yes, if you work from home you can claim a deduction for home office expenses. From 1 July 2022, the ATO allows two methods. The fixed rate method lets you claim 70 cents per hour worked from home, covering electricity, internet, phone, and stationery. Alternatively, the actual cost method requires you to calculate the actual proportion of each expense attributable to your work. You can also claim the work-related portion of depreciation on office furniture and equipment. You must keep records of hours worked or actual expenses incurred. At BVM, we help clients across South West Sydney determine which method delivers the best outcome.
What is the instant asset write off threshold for small businesses?
For the 2025-26 financial year, small businesses with aggregated turnover under $10 million can immediately deduct the full cost of eligible assets costing less than $20,000 each. This threshold applies per asset, so you can write off multiple assets in the same year. The asset must be first used or installed ready for use within the relevant income year. Assets costing $20,000 or more are placed in the small business simplified depreciation pool and depreciated at 15% in the first year and 30% thereafter. This concession is a valuable cash flow tool for businesses investing in equipment and technology. Our team at BVM helps clients time asset purchases for maximum tax benefit.
How do franking credits work for business owners?
When your company pays tax at 25% on its profits, it generates franking credits. These credits are attached to dividends paid to shareholders and represent tax already paid at the company level. When you receive a franked dividend, you include both the dividend and the franking credit in your assessable income, then receive a tax offset equal to the franking credit. If your marginal tax rate is higher than 25%, you pay the difference. If it is lower, you receive a refund of the excess credits. This system prevents double taxation of company profits. At BVM, we help business owners in Sydney plan their dividend strategy to optimise franking credit utilisation.
What is the difference between concessional and non concessional super contributions?
Concessional contributions are made from pre-tax income and include employer SG payments, salary sacrifice amounts, and personal contributions you claim a tax deduction for. They are taxed at 15% within the fund and capped at $30,000 per year for 2025-26. Non-concessional contributions are made from after-tax income and are not taxed when they enter the fund. The annual cap is $120,000, with a bring-forward rule allowing up to $360,000 over three years if you are under 75. Exceeding either cap triggers additional tax. Our CPA qualified team at BVM helps clients across Oran Park develop contribution strategies that maximise retirement savings while minimising tax.
Can I use a family trust to reduce my tax legally?
A discretionary family trust allows you to distribute income among family members who may be on lower marginal tax rates, which can reduce the overall family tax burden. However, there are important rules to follow. Distributions to minors (under 18) are taxed at penalty rates on amounts over $416. The trust must have a genuine commercial purpose and distributions must be made by 30 June each year. The ATO scrutinises trust arrangements under Section 100A where distributions are made to one beneficiary but the funds benefit another. When used correctly and for legitimate purposes, trusts remain an effective structure. At BVM, we advise clients on compliant trust strategies.
What is the small business income tax offset?
The small business income tax offset (SBITO) is available to individuals who are sole traders or have a share of net small business income from a partnership or trust. For 2025-26, the offset is 16% of the income tax payable on your small business income, up to a maximum of $1,000 per year. To qualify, you must be carrying on a small business with aggregated turnover under $5 million, or have a share of income from such a business. The offset is non-refundable, meaning it can reduce your tax to zero but will not generate a refund. Our team at BVM helps eligible clients across Sydney ensure they receive this offset each year.
Need Help With This?
If you have questions specific to your situation, our team can provide tailored advice. We work with over 100 small businesses across Sydney and hold a 5.0 Google rating.
This information is general in nature. It does not constitute professional advice tailored to your specific circumstances. Tax laws change frequently and individual situations vary. We recommend consulting with a qualified accountant before making financial decisions based on this information. BVM Accountants & Business Consultants, Oran Park NSW 2570.