Ep49: All You Need To Know About Tax & Business Structure

What's going on? Team Matt here from the PT Profit, Leverage and Lifestyle show. I've got a good friend of mine, Michael Gillaspa with me today talking all things about accounting. So we actually just got back from the Gold coast last week. Absolutely crushing it to a degree last week. So pumped to be back and I thought it would be a good opportunity to get Michael on the, the podcast. So thanks so much for joining us. How are you today?

Thanks Matt. Thanks for having me. Yeah, really well that's the way just leading into Christmas.

Very good. So I like to do a bit of an intro on, on your end. So do you want to give us a bit of context in terms of what you do? Just, just so everyone kind of knows, knows who we're talking to.

Yeah, sure. So I've been an accountant for about 10 years now, mainly working in the tax and business services space. So that generally means providing taxation advice, general business advice to clients and things like that. Chartered accountant as well. So yeah, that's basically in a nutshell with my job entails.

Beautiful happy days. We obviously talked a little bit earlier about a few of the things that we were gonna talk about today. So I know obviously we can't give specific advice but we'll try and give people a bit of a understanding of what they could do for their tax strategy. So I suppose for, for personal trainers, most personal trainers start off as a sole trader. So do you want to give us a bit of an insight into. I suppose a couple, the couple of the different ways that they can structure their, whether it's the tax tax strategy or their account setup. Do you want to give us a bit of insight into what that could look like?

Yeah. Okay. So I can think with sole traders, obviously everything's kind of tied to them, all the risk, profits and everything like that. For accounts like as in just in terms of like their, what software they use, that kind of thing. Is that what you're talking about?

Yeah, like even, even, like, like even with bookkeeping, like I use, I use Xero for example. I'd be even curious to know if that's probably something that you suggest using or if there's other ones that are better.

Yeah, I think zero is probably the one is probably my preference in terms of the accounting systems I've seen that have been on online for the longest. I think they're probably obviously being online the longest, they've had the most time to really improve their product and there's a lot of add ons and things like that. Add on apps and software that integrates really well with Xerox. I think that they do integrate with other funds as well, probably not as many. So you get, you just get a lot more reach with Xero. Obviously zero is probably one of the more expensive ones so you just weigh that up. But I think especially when starting out as a sole trader, that's probably your best bet. You'll probably find a lot of accountants and that use that platform for their firm as well. So it does integrate pretty well. If you are using Xero, that's not the same of, or reckon one of those types of ones use them as well. Like they're still pretty, pretty good. But I think in terms of market share, 0 is definitely the top today. And just it kind of especially that solitary level, it might almost eliminate that need for a bookkeeper. You know, the accountants are trying to help set up a file for the clients, sort of show them around and then kind of slowly get them doing a lot of that day to day stuff themselves. So you might add a little bit of cost at the start, but then you save in the long run.

Yeah, yeah. I remember when I. Well, I didn't really have. And I probably should have asked you when I first started my business, to be honest, but I'd never, I never had any type of accounting strategy I suppose when I first started the, the PT business. And I actually didn't even start using Xero until probably, probably a good 12 months after running the business. Do you feel like that's something? Because I've never had a bookkeeper. I just use Xero myself as you said. So do you think it's something that you need to do from when you first start the business or is it something that you could obviously catch up on if you.

I think, I think it, I think it might depend on like your organizational skills as well. And I guess you're. Yeah. How savvy you are financially. Like I've seen people with, you know, just keep it all in tabs on Excel. That works, that works fine. But yeah, I think predominantly, I think it'll definitely help people in the long run when they're starting out that business. I think another thing, the important thing is to even if you're a sole trader, have a separate bank account that's purely business side. It just helps to eliminate any like personal things that you know shouldn't be going through the business because like you would have seen Xero, you get a bank account set up, bank feed, every transaction is going through there. I guess the more personal stuff that's going through there just creates unnecessary work for you as well.

Yeah, yeah, completely agree with, with, with the account set up in terms of having a separate account for business, is there any. And I'm just probably curious on my end because I've got a business account with Commonwealth bank, for example, and my personal account is with ing. Is there any risk in having personal and business accounts with the same bank? Or does that not matter?

No, I don't think so. Like all those banks will have the different kind of accounts that you can set up. And look, I think you could get away with having the one account you know, when you're first starting up, like where you have both business and personal, just as long as you're keeping track of all that. So I've got plenty of clients that have done that. But yeah, I think you just start getting into trouble, especially when you start growing, doing more transactions.

Yeah, love it. Beautiful. The other thing I wanted to ask as well, and you can obviously be quite general here about registering for GSC for a business. Is there like a general rule, the I suppose any industry on when is the appropriate time to register for GST as a business?

Yeah, sure. So really, any. Anyone who's. There's a threshold of 75,000 in revenue or what they'd call taxable supply. So there might be things that aren't income for GST purposes, but anything that's income for GST purposes. Once you hit over 75,000, you'll need to register for GST. Or if you think that like if you're doing like a pro rata year and it looks like if you want did that for over 12 months, you be in excess of 75,000. The ATO basically says you must register for GST, but even if you aren't hitting that 75,000, you can still voluntarily register because obviously that'll help with, you know, people starting up where they're not hitting 75,000 but they're having to incur costs. I don't, not really sure how. How much overhead a PT would really have. But you know, if you're incurring a lot of costs that do have the GST applied to it and you're not registered, you obviously miss out on those credits to claim back. So it might be worth voluntarily registering earlier and then you at least get that back, which helps your cash flow as you progress.

That's a good point because, and just for context, most personal trainers would pay a weekly fee to use the facility, which would have that GST component. So that's actually a good point because all PTs would have that from starting out, whether they're making zero or you know, whatever. So that's, that's good food for thought. And then what about what stage do people generally have a conversation about becoming a company? And I suppose do you want to give us some insights on any benefits or even comparing sole trader versus company, pros and cons to both?

Yeah, for sure. I mean you could, you could do a company from Dayjot if, if that was your preference. Obviously probably the main pro there is, well, there's a couple. There's the risk and asset protection in a company. It's kept with the company. So you potentially depending on structure and how, if you're the director and that there is more limited risk, not fully exempt from risk, but at least then you, you know, you got a bit of asset protection there from your personal side. And Obviously corporate tax rates 25% for small business, 30% for where it's not considered small business. You know that if you're starting to earn, you know, 120, 130 plus as an individual, you're then probably starting to look at, it might be better from a tax perspective to move over to a company. I guess the cons of that is with a company, and you see it a lot with clients is they'll go from maybe a sole trader or they just start up a company from scratch and they'll go, they'll, they won't, you know, differentiate. A company's bank account is not their bank account. So it's not an ATM for you to just take whatever's out of there. That's, that's the, that's one of the main issues I see with people going up. They just treat it like their ATM so that they can, you know, fund their lifestyle. And then it gets the end of the year and we go, hey, you got a problem, you're ripping this money out tax free. The ATO doesn't like that. And I guess the other thing there is with assuming PT is the director of company, they still need to understand that they are, they can be held personally liable for GST debts of the company. And if they start employing people, that's a big one. Any super and unpaid payoig withholding tax, they can be made personally liable. So if the company can't afford it, the ATO then can get, then can lump it onto them personally and then they're up for that debt. So I think when you start employing people, it probably would be better to have than a company. It doesn't mean you can do it as a sole trader. Probably better to have that in the company. But then when you start employment, you just got to be. Just got to be mindful of the fact that, you know, if the company, for whatever reason, can't pay those debts, you're up for that personally.

Yeah, right. That makes. I mean, I suppose that makes sense, naturally.

And I think the main thing as well. Sorry, I think the main thing as well is I see it a lot where people go, okay, I'm going to pay this. But then when they actually go to pay it, you know, you've got the net payment that you pay out to an employee, but then you've also got the tax that needs to be paid to the ato. A lot of people forget about tax. They go, I've paid my employee, sweet. Whatever cash is left over I can do or whatever with. That's what people get in trouble when they go into a bas in a month's time and get it, oh, I haven't got the money to pay this. So you got to be mindful of that as well, mate.

Too many times that's happened to me. Too many times. Do you? So I would assume then it obviously would be quite beneficial to have a separate account just for tax purposes as well. Just because, like, obviously the GST portion of the revenue that you make as well is obviously not the company's money. That pretty much goes straight to the ato. So, yeah, I suppose the. The benefit would obviously be have a separate account specifically put aside for GSC or tax purposes. Because, yeah, I've experienced this myself. You're just like, hey, there's a bit of money in there. Go have some fun.

Yeah, exactly. Yeah. I've seen some people do it that way where they've got separate accounts for all of that. I think for me, it would just be about understanding not just your operating costs. And this, this would be a great thing to do with an accountant. You know, like, I think a lot of people perceive accountants as like, oh, they just handle our tax and at the end of the year, but it's actually like their business advice as well. And the spirit, especially when you're starting out, these are the kind of things that you should look to do with your accountants. And one of them is budgeting to go, okay, you got your overhead cost, but you've also got your costs like your superannuation payg that don't necessarily get tracked the same way to go, okay, well, you know, your overhead's like 10 grand a week or whatever it is, and then 10 grand a month, you. You've got your poig and super, which is five. So really you should be making sure that there's 15 grand there, you know, each month either. So if you're doing it that way, you can probably just keep the one bank account. But it depends on how people, you know, want to run it and how they kind of see things with money. If they would prefer to have a separate account that they just move money to for that purpose. Absolutely.

Yeah. Yeah. Awesome. All right, well, let's get into the. Let's get into the juicy stuff. Let's talk about tax deductions. And I know, I know this will be obviously depending on individual situation, but do you want to even just give us a bit of an overview of some of the things that people could claim on tax and the individual can make up their mind. They can obviously go see their accountant or whatever if it's applicable to them.

Yeah, definitely. I think, like, I was having a bit of a look at it on the ato because the ATO actually lists out various industries and what might be specific to those industries or more common pts were actually pretty standard in terms of deductions comparing to other workplaces. I think the main thing is, like, and as with any deduction is, you know, has. Was it incurred in gaining accessible income? You know, have you actually spent the money as well? Have you kept the appropriate records there? Probably the three things, you know, you need to be mindful of when claiming deductions. And I think, especially, like, for me as an accountant, I'm not asking a client for every single record. Sometimes, you know, save costs and things like that. They'll just summarize it from my point of view. You know, the assumption there is that they've got the appropriate records to back that up if it was ever you know, reviewed or audited. So I think it's just in important to make sure you always keep those receipts. One thing I have seen from cases with the ATO is that some bank statements might not necessarily be enough to claim the deduction. So, yeah, it's good that you've got that to show that it's been paid, but that might not be enough in its own right. So that's just enough. Little tip there. Well, I think for PTs, obviously, like you said, the fees that they pay to the gyms and things like that. Most certainly. And then, you know, I think probably the big one that I did have a look at is I think a lot the Perception would be that, you know, the gym membership would be why a lot of people try and claim that. And from what the ATO had put out there, it's very, very unlikely that you could, you know, looking at even like for example like a firefighter or a defence force member even they can't claim it even though they've got very strict, you know, like physical requirements to meet. So that's probably one. Yeah, you would definitely need to just consult your accountant on if you are kind of. Because those obviously can get quite expensive as well. So. But, and even things like, like gym wear and stuff like that, you've just got to really go through the rules there with the ato. I think there'd certainly be cases where you could. But you've just got to be very careful. So even like for accountants where they go you must wear a suit to, to work even though the employee's saying you've got to wear a suit because it's something that, you know, everyday people can wear. It's considered a personal cost. So yeah, we get strung out when we have to buy suits. But unfortunately those, those days are not really as common anymore, which is good. And then, then things like motor vehicles and stuff like that and follows the general rules around claim a motor vehicle. So either using a log book or just claiming the cents per km method up to 5000 km. But again you've just got to be careful of, you know, what's actually a business related trip. So you're going from home to work, work to home. It's treated as private. So just make sure. Yeah, travel 5,000 kilometers. But it's all work, home.

I'm the work. Okay. So other question. So if I, if I was to go, for me, for me being because I obviously I work from home now 247 pretty much I was to, let's say I'm seeing a client who lives on the Gold Coast. For example, if I was to go see someone last week and I was actually going to the cricket game, but then I did a tour to go see my client, which I know you might not be able to give me a specific answer here, but which part of that would be tax deductible?

That's a good question. I think as well the fact that you're working from home and that's probably where it gets a bit gray as well is where you've got a, where your home is your permanent place business. That's where that home to work or home to a client's place, that's where it Might switch to deductible. Where you got your place of work. I can't remember the exact. I remember doing it for a client, but I can't remember the exact rules on that. So again, check with you again. I would say certainly that that trip to the client, you could, you could potentially claim a portion of that. I think whether you pro rata or just go, I've gone to. From my place to the client, that part of it. But then following on from that obviously private stuff, that portion being non deductible.

Yeah, yeah, that makes sense. Just sort of circle back a little bit. You mentioned obviously keeping records of like expenses in case you get audited and that type of stuff. Is there. Is there a. Because I'm. I'm very average at this as well. Is there a software. That's the software. There's a software that I've used before, but I can't remember it right now. Is there any software that could store a lot of these receipts so we don't have to keep them around the house or anything?

Yeah, absolutely. I know. Top of my head. I've used Receipt Bank, Dext. There's a couple of. There'd be plenty where you just go take a screenshot on your phone of an invoice and it sends it straight. And they're all integrated with Xero. So you just send it straight to your Xero file, attach it to the transaction and then you know, same thing with. If you're using Xero for invoices, then obviously it's already in there. But if you were using a different program like Receipt bank, you know, clients can. Then you can. Sorry, if you're using Receipt bank and things like that, suppliers that you use can do the same thing. Send a screenshot, send a photo or there's a specific email address that gets set up. They can email the invoice to that which then goes into the software and then it's all just attached. So if you do ever get ordered, you just go straight to the transaction and it's attached there. Definitely does help with your record keeping.

Beautiful.

And as well, it definitely saves time on our end as the accountant to go. Sometimes you see something go, what the hell is this? Rather than having to go back and forth with the client, take up more time, we can just see it in the transaction. Carry on.

Yeah, I gotcha. So you obviously I don't do this at the moment. So you can obviously just upload the record into the transaction on Xero. It's all done through zero. Is that Right.

It would. You would use the other software to upload it.

Okay.

And then it would. And a lot of these programs, obviously using AI, they'll. They start to learn a lot. So, you know, if it's the, say it's the gym management fee or whatever it is, they'll learn pretty quickly because it's a regular thing and it'll start to autofill, like, okay, which account does it go to? And all that. And by the end of it, it's probably like two clicks of a button to have it all reconciled.

Yep. Awesome. Happy days. They're the main questions I wanted to ask you. Is there anything, anything else that we didn't talk about that you'd like to give any tips on? Or did we. Did we cover everything?

I think we covered most things. One of the structures that we probably didn't talk about is trusts. They are being used. I think me personally, I'm starting to steer away from trust a bit. Just with the amount of regulation that's been put on them by the ATO recently, there's still a handy structure to use. You know, they, rather than having to, as a sole trader, pay tax on all the profit because it's all in your name, you've got that flexibility to send it to other people, you know, so if you've got spouse or a lot of people use like a. They call it like a bucket company. So it's just used for, like, investments. You can distribute profit from the trusted company, pay lower tax. But there's a lot of other things, a lot of issues that go along with that. So that's why I probably stick clear of trust. But certainly, you know, as you starting to increase that profit, you know, if you split that profit between husband and wife, you know, you're paying a lot less tax overall than if you're coming as a sole trader. But it's just, I think one of the things to think about with setting up the business is people just think about the now, but you've also got to think about in the long run, you know, where you see it going as well as your exit plan. So, like, you know, what's your exit planning going to be? And that might suit, you know, for a trust structure, or it might be better that put it into a company structure. Because once, once you set it up, you know, to undo it or change it, obviously that comes with tax consequences as well. Because while you might think like from a sole trader, you can just roll it straight into a company that's technically a sale of a Business, even though, you know, it's just going from you to a company, you just got to think about those things as well. You go, okay, well, if I set it up now, what. And if we grow it to X amount, what does that look like? If I then change it to a company or to a trust, how am I going to manage that in the future?

Yeah, that's, that's interesting. So, so in summary, based on this conversation is go see an accountant to get some personalized.

That's right. And like, not just about tax as well. Well, like, I think people, you know, they, they spend a lot of time just worrying about the tax side of things. And then, you know, the, the whole business growth and all of that takes a, you know, backseat to it. And you go, really? If, if no one likes to pay tax, but I think if you're paying tax, it means you're making a profit. Right? It's just about, you know, managing the tax and implementing things to effectively minimize the amount that you do have to pay. Obviously, legally.

Yeah, yeah, keyword, legally.

That's right.

So, yeah, that was interesting because I was speaking to someone else about structure of when you, when people want to buy property and obviously the banks want to see profit. So if your tax strategy reduces your tax bill, which means you're probably, probably not going to show the banks that you have that much profit, which is the problem that I had. I was trying to optimize my tax, but the banks were like, well, hold on. You want to buy this much property, but on, on the, on paper it says you're doing so.

Yeah, yeah, that's right. That's, that's, that's a great example of, you know, like, where, yeah, you might be saving on tax, but, you know, it hinders you in other areas I think as well, like spending money just for the purpose of tax deduction. I think it's like, if you need it, absolutely go for it. But if you're just doing it for the purpose of getting a tax deduction, if it's impact, if it's going to impact cash flow, it's like, why do it, you know?

Completely agree. That was awesome. Thanks so much for the conversation.

Thank you very much.

Awesome having you on. And make sure you get back into the nets, mate, so you can make some more 50s next week.

That's right.

Thanks, champion. Have an awesome day.

You too much.