Running a business isn’t just about making money. It is about keeping as much of it as possible while staying compliant with tax laws. The right tax-effective business structure can make a big difference when it comes to retaining more of your hard-earned profit.
If you have ever wondered whether there is a smarter way to save on tax, reinvest profit into the business, and even grow your wealth, there is.
Let’s look at tax-effective investment structures that can help business owners keep more of what they earn.
Your Business Structure Could Be Costing You Money
Not all business structures are the same. Some make it easier to minimise tax and reinvest profits, while others may leave you paying more than you should. Understanding which business structure fits your financial and business goals can help you reduce your tax liability while securing long-term growth for the business.
Here are some of the most effective structures to consider.
Discretionary Family Trusts: Keeping More in the Family
A family trust provides a strategic way to distribute income among beneficiaries, potentially lowering overall tax burdens. For example, if you are a professional consultant turning over $250,000 in net profit annually, instead of receiving all of this income in your personal name and paying a high marginal tax rate, you could operate through a discretionary family trust.
The trust distributes income among your beneficiaries, which could include retired parents and university-aged children, who are in lower tax brackets. This approach significantly reduces the overall tax liability for the family while keeping wealth within the household.
Also, by holding business assets in the trust rather than in your own name, you could gain asset protection against potential legal claims.
Self-Managed Super Funds (SMSFs): A Tax-Friendly Retirement Plan
SMSFs give business owners greater control over their retirement savings while offering significant tax advantages. Earnings within an SMSF are taxed at just 15%, significantly lower than standard personal tax rates. This structure allows for a diversified investment approach, including property, shares, and even certain business assets.
For example, if you run a small business and want to invest in commercial property while maximising tax benefits, your SMSF could buy the commercial premises, and your business could then rent it from the fund.
By structuring it this way, your business rent payments go into your superannuation fund rather than to an external landlord. Since SMSF earnings are taxed at only 15%, this significantly reduces tax obligations while securing a valuable asset for the future. However, strict compliance requirements apply, so expert tax guidance is essential. Talk to Growth iQ for further insight and advice.
Note: From 1 July 2025, the government plans to introduce a 30% tax on super balances exceeding $3 million, which could impact how high-net-worth individuals approach SMSF strategies.
Company Structure: Lower Tax Rates and Growth Potential
Incorporating your business can result in substantial tax savings, thanks to lower corporate tax rates. Retaining profits within the company allows for reinvestment while deferring personal tax obligations.
For instance, if you operate a profitable e-commerce business and your income is reaching higher personal tax brackets, a company structure could provide tax advantages. As a sole trader, all profits would be taxed at your personal income tax rate, which could be as high as 45%.
By transitioning to a company structure, you could take advantage of the lower corporate tax rate of 25% for base-rate entities.
Retaining profits within the company also allows for reinvestment while deferring personal tax obligations. If you need to take money out of the business, you could issue yourself dividends at a time when it makes the most financial sense.
Partnership of Trusts: A Collaborative Approach to Tax Efficiency
If you’re in business with a partner, a standard partnership structure could mean both of you paying tax at your personal income tax rates on your share of the profits. Instead, structuring the business as a partnership of trusts can offer more flexibility and tax efficiency.
With this setup, each partner operates through their own discretionary trust. Profits flow through the trusts rather than directly to the individuals, allowing income to be distributed to beneficiaries in lower tax brackets. This helps reduce the overall tax burden while also offering asset protection.
If one partner decides to leave the business, they can transfer their trust’s share to someone else without disrupting the partnership. This structure works well for business owners who want to pool resources while keeping individual financial control.
How to Grow Wealth Without Overpaying Tax
Choosing the right structure is only part of the equation. The next step is using smart investment strategies that help you reduce tax while building financial security long-term.
Super Contributions: A Simple Way to Lower Tax
Superannuation is one of the most tax-effective investment options available, offering concessional tax rates on contributions and earnings. Redirecting a portion of pre-tax income into super through salary sacrifice not only lowers taxable income but also helps build a stronger retirement fund.
For those over 55, a Transition to Retirement (TTR) strategy allows access to up to 10% of super balances annually while maintaining tax efficiency. Also, co-contributions from after-tax income can provide further tax benefits, especially for low and middle-income earners. Business owners and retirees may also leverage special contribution allowances to claim additional deductions.
Property Investment: Maximising Tax Deductions & Reducing Capital Gains
Investment properties provide multiple tax advantages, from deductible expenses such as interest, maintenance, and property management fees to strategies that minimise capital gains tax (CGT). Negative gearing allows property owners to offset rental property losses against other income, reducing taxable earnings. Meanwhile, holding an investment property for more than 12 months reduces CGT liability, making long-term property investment a tax-efficient strategy.
Investment Bonds: A Set and Forget Tax Strategy
Investment bonds are a tax-efficient way to grow wealth without the hassle of annual tax reporting. Unlike other investments, earnings within the bond are taxed at a fixed company rate and do not need to be included in your personal tax return.
The real advantage comes if you hold the bond for at least 10 years. After this period, any withdrawals are completely tax-free, making it a simple, long-term wealth-building option. This makes investment bonds ideal for high-income earners looking for a low-maintenance, tax-effective strategy to grow their wealth over time.
Family Trusts & Income Splitting
A family trust allows income from investments to be distributed among family members in lower tax brackets, helping to reduce the overall tax bill. Instead of one person being taxed at a high rate on all investment income, earnings can be shared across beneficiaries, such as children or retired parents, who may have little or no taxable income.
This strategy is particularly useful for high-income earners who want more flexibility in managing investment returns while also ensuring their family’s wealth is structured efficiently. It can also offer asset protection benefits, keeping family wealth secure across generations.
Shares and Franking Credits: A Smarter Way to Invest
Investing in shares with franking credits can be a powerful way to reduce tax on investment income. When a company pays dividends, it has already paid tax on its profits at the corporate tax rate. Shareholders then receive franking credits, which act as a tax offset when they lodge their tax return.
If your personal tax rate is lower than the corporate tax rate, you could receive a tax refund for the difference. This makes franking credits especially valuable for retirees and lower-income investors, as they can help reduce or even eliminate tax on dividend income.
Three Key Steps to Optimising Your Tax Strategy
- Know Your Marginal Tax Rates: Understanding your tax bracket helps you evaluate which strategies will be most effective for you. For example, if you’re a high-income earner, focusing on investment bonds or franking credits can help lower your overall tax liability.
- Choose the Right Investment Structure: Align your investment choices with your financial goals and tax obligations. Let’s say you own multiple rental properties, holding them within a family trust could reduce your tax liability by distributing income among lower-taxed family members.
- Develop a Comprehensive Tax Strategy: Work with professionals to create a plan that maximises your wealth and minimises tax liabilities. A strategic approach can ensure you benefit from tax breaks while remaining fully compliant.
Turn Tax Challenges into Growth Opportunities
Keeping more of what you earn isn’t just about making the right investments. It is about structuring them in the most tax-efficient way. The right strategy can help you minimise tax, reinvest more into your business, and build long-term financial security.
At Growth iQ, we help business owners implement tax-effective structures that align with their financial goals. Whether it is restructuring your business, leveraging family trusts, or optimising super contributions, our Agile CFO services provide the expertise to ensure you are making the most of your profits while staying compliant.
Book a strategy session today to create a tax plan that supports your business growth and financial future.