Practical Business & Tax Insights

A husband and wife operated a business together through a partnership.

Historically, the partnership profits had been allocated 50/50.

But when preparing the accounts, we noticed that their circumstances had changed. One partner was now substantially more involved in operating the business, while the other's involvement had reduced.

Rather than automatically copying the previous year's 50/50 treatment, we raised a different question:

Did their existing profit-sharing arrangement still reflect how they genuinely intended to operate the partnership?

A partner salary isn't an employee salary

One option we considered was whether their partnership arrangement should provide for a partner salary to the partner taking on the greater role, before the remaining partnership profit was divided between them.

The terminology can be misleading.

A partner generally isn't an employee of their own partnership simply because they receive a “salary”. A partner salary is generally not an additional tax deduction that reduces the partnership's taxable profit.

Instead, it can form part of the agreed mechanism for allocating the existing partnership profit between the partners.

For example, suppose the partnership generated $200,000 of profit.

A straightforward 50/50 allocation would result in $100,000 being allocated to each partner.

But if the partners had genuinely agreed that one partner was entitled to a $60,000 partner salary before the remaining profit was divided equally, the allocation could instead be:

Partner 1: $60,000 partner salary + $70,000 share of remaining profit = $130,000

Partner 2: $70,000

The partnership hasn't created another $60,000 deduction.

It still has $200,000 of profit. What has changed is how that profit is allocated between the partners under their partnership arrangement.

The commercial arrangement comes before the tax outcome

This isn't something that should simply be decided after 30 June based on which spouse has the lower marginal tax rate.

The starting point is the genuine partnership arrangement.

If the partners' roles or commercial expectations have changed, it may be appropriate to review how they have agreed to share the profits of the business and whether their partnership agreement still reflects that intention.

Any change should be properly considered, agreed and documented prospectively, rather than retrospectively changing the allocation simply to obtain a preferred tax result.

For these clients, one partner's involvement in the business had changed substantially.

That gave us a reason to review the underlying arrangement rather than automatically carrying forward the previous year's 50/50 allocation.

Don't let last year's tax return make this year's decision

A 50/50 partnership doesn't necessarily mean every year's partnership profit must always be allocated 50/50.

But neither can the profit split simply be changed each year to whichever allocation produces the lowest tax bill.

The question is:

What have the partners genuinely agreed, and does the documented arrangement still reflect how they intend to share the economic results of the business?

For this client, recognising that their circumstances had changed prompted a review of an arrangement that might otherwise have simply been copied from one tax return to the next.

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This case study has been generalised, and certain details have been changed to protect client and business confidentiality. General information only. Partnership profit allocations and partner salary arrangements depend on the partnership agreement, the partners' legal and beneficial entitlements, the timing and implementation of any changes and the applicable tax law. A partner salary is generally an allocation or advancement of partnership profits rather than deductible employee remuneration. Changes should reflect a genuine partnership arrangement and be established and documented appropriately rather than retrospectively implemented to obtain a preferred tax outcome.

Sometimes improving a client's financial position isn't about finding another tax deduction.

It's about looking at the whole picture.

We had a client earning approximately $7,500 a year in bank interest from cash they were holding separately. At first glance, earning interest sounds like a good thing.

But when we looked at their broader position, we noticed something important: they also had a home mortgage.

Together with an appropriately licensed financial adviser, we considered a simple question:

Why was the client earning a lower rate of interest on their savings while paying a higher rate of interest on their mortgage?

The comparison wasn't simply 4% versus 6%

Suppose the client's savings were earning approximately 4%, while their home loan was costing approximately 6%.

Earning $7,500 at 4% implies savings of around $187,500. At a 6% mortgage rate, having that same amount effectively offset against the home loan could potentially reduce mortgage interest by approximately $11,250 per year, assuming the rates and balances remained unchanged.

But there was another consideration.

The $7,500 of bank interest was assessable income. For a client on a higher marginal tax rate, part of that return would be lost to income tax.

So, the real comparison wasn't simply:

4% savings interest versus 6% mortgage interest.

It was the client's after-tax return on their savings compared with the interest cost of their private home loan.

Interest avoided on a private home mortgage doesn't itself create additional assessable income. This meant the difference could be considerably greater than the headline interest rates initially suggested.

The opportunity was surprisingly simple

After considering the client's circumstances with their financial adviser, one option was to hold the cash in an appropriate mortgage offset account rather than a separate interest-bearing savings account.

The cash remained available to the client, but instead of earning taxable interest at a lower rate, it could reduce the balance on which home-loan interest was calculated.

It wasn't a complicated investment strategy or an obscure tax concession.

It was simply about asking whether the client's cash and debt were working efficiently together.

There is also an important distinction between an offset account and paying money directly into a loan with a redraw facility. Redrawing previously repaid amounts can have different tax consequences because a redraw is generally treated as a new borrowing. This can become particularly important if the property is later used to produce assessable income.

That is why the appropriate loan structure needs to be considered before simply moving the money.

Making cash and debt work together

The important question wasn't simply how much tax the client was paying on their interest income. It was whether their cash and debt were working efficiently together.

The client was earning a lower rate of taxable interest on their savings while paying a higher rate of non-deductible interest on their home mortgage. Looking at both sides of the balance sheet exposed an opportunity that wasn't obvious from either item in isolation.

As tax advisers, our role was to identify the tax consequences and highlight the opportunity. Because the decision also involved the client's debt, liquidity and broader financial position, we worked alongside an appropriately licensed financial adviser.

Sometimes the opportunity isn't hidden in the tax legislation. It's sitting in the client's bank account.

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This case study has been generalised, and certain details have been changed to protect client confidentiality. General information only. The appropriate use of savings, offset accounts and redraw facilities depends on individual circumstances and lending arrangements. Redraw and offset arrangements can have materially different tax consequences, particularly where a property may subsequently become income-producing. Our role was to advise on the taxation consequences and identify the opportunity. Financial product advice may require advice from an appropriately licensed financial adviser, while lending and credit matters may require advice from an appropriately licensed credit adviser.

Sometimes a tax return shows us a cost that doesn't necessarily need to keep occurring.

We had a higher-income client who was paying the Medicare Levy Surcharge (MLS) because they and their spouse didn't have appropriate private hospital cover. Rather than simply calculating the surcharge again and moving on, we raised a simple question:

“Have you considered the cost of appropriate private hospital cover compared with the Medicare Levy Surcharge you're paying?”

They were paying extra tax every year

The Medicare Levy Surcharge is separate from the ordinary Medicare levy. Depending on income and family circumstances, higher-income taxpayers without appropriate private patient hospital cover can pay an additional 1% to 1.5% of their income for MLS purposes.

For a higher-income family, that can become a significant recurring cost. But the client had never really compared the cost of the surcharge against the cost of obtaining appropriate private hospital cover.

We suggested they investigate their options. After obtaining quotes for appropriate hospital cover for both husband and wife, they discovered that the cost of the cover was less than the Medicare Levy Surcharge they would otherwise be paying.

With appropriate cover in place, they could eliminate their MLS exposure for the periods they were appropriately covered, subject to continuing to satisfy the relevant requirements. The ordinary Medicare levy remained separate and was not eliminated.

Recurring tax costs are worth questioning

When the same additional tax cost appears year after year, it's worth understanding why it's arising and whether the client has options.

In this case, the Medicare Levy Surcharge wasn't an unavoidable annual cost. Once the client understood why it was being imposed, they could compare that cost with the cost of appropriate private hospital cover and make an informed decision about what suited their circumstances.

Sometimes the important question isn't “How much tax do I owe?” It's "Why am I paying this every year?"

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General information only. The Medicare Levy Surcharge is separate from the ordinary Medicare levy. MLS liability depends on income for MLS purposes, family circumstances, dependants and whether appropriate private patient hospital cover is held for the relevant period. The cost, suitability, benefits and terms of private health insurance should be considered by the client with the insurer or an appropriately qualified adviser.

Achieving a better tax outcome doesn't require a complicated strategy.

Sometimes it starts with asking one simple question.

A new client came to us after previously having their tax returns prepared elsewhere. They owned a rental property, so as part of our review we asked: “Do you have a depreciation schedule prepared by a quantity surveyor?”

They didn't, and this was something that had not previously been raised with them. We recommended that they consider engaging a qualified quantity surveyor to assess the property and prepare a depreciation schedule. They did — and the results were significant.

From $8,345 payable to a refund

Before our review, the client's 2025 tax position showed approximately $8,345 payable to the ATO. After the depreciation schedule was prepared and the client's tax position was reviewed, the result changed to an approximately $1,865 refund.

That's a turnaround of approximately $10,210 for the 2025 income year alone.

But we didn't stop there. Once the depreciation schedule had been prepared, we considered whether the client had also missed deductions in the previous income year. We reviewed their 2024 tax return and identified an opportunity to amend it.

The client had previously paid approximately $5,430 to the ATO for 2024. Based on the revised position, they could recover that amount and receive an additional refund of approximately $2,177, improving the client's 2024 tax position by approximately $7,606.

Across the two income years, the overall improvement in the client's tax position was approximately $17,816.

In cash-flow terms, instead of paying the ATO another $8,345, the client moved to receiving refunds and recovered tax totalling approximately $9,471.

And the process started with one question: “Do you have a depreciation schedule?”

The review mattered

Clients don't necessarily know every deduction that may be available to them. That's why preparing a tax return properly involves more than entering the information provided — it also means reviewing the client's circumstances and identifying areas that warrant further investigation.

In this case, one missing depreciation schedule ultimately contributed to an approximately $17,816 improvement in the client's tax position across two years.

The opportunity was identified because the review went beyond the figures already appearing in the return.

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General information only. Eligibility for depreciation deductions depends on the property, taxpayer, acquisition date, expenditure and other circumstances. A quantity surveyor's report does not itself determine tax deductibility, and the tax treatment of identified amounts must be considered under the applicable tax law.

Sometimes significant tax savings don't come from complicated tax structures. They come from asking the right question at the right time.

A client was considering selling an asset that had increased substantially in value. Before putting it on the market, they called us to discuss the potential tax implications and asked:

“If I sell this, what am I going to be up for in tax?”

As part of that conversation, we asked about the expected sale price, cost base, associated costs and, importantly:

“When did you acquire it?”

That last question changed the conversation.

They had only owned it for 10 months

The client had owned the asset for approximately 10 months.

Eligible individuals and trusts can generally access the 50% CGT discount where they have held a CGT asset for at least 12 months, and the other requirements are satisfied.

Our client was potentially only two months away from qualifying.

There was no commercial need to sell immediately, so rather than simply calculating the tax consequences of selling now, we discussed whether they should consider waiting until the 12-month ownership requirement had been satisfied before entering into a sale.

What could two months be worth?

The asset was expected to produce an approximately $300,000 capital gain.

Under a simplified example, assuming there were no capital losses to apply, and the client otherwise qualified for the 50% CGT discount, the capital gain remaining after the discount could reduce from $300,000 to $150,000.

For an individual whose additional taxable income would otherwise be subject to the highest marginal tax rate, including Medicare levy, that $150,000 difference could represent approximately $70,500 - or around $70,000 - in tax.

That wasn't because we implemented an aggressive tax structure or anything particularly complicated.

We simply asked:

“When did you buy it?”

Timing matters

There is another important point. For a typical disposal under a contract, the CGT event generally occurs when the contract is entered into, rather than when settlement occurs.

So, this isn't necessarily something that can be solved by signing a contract before satisfying the 12-month requirement and simply arranging settlement for later.

That is why having the conversation before the client committed to the sale mattered.

Had the client entered into the sale first and sought advice afterwards, the opportunity to potentially access the 50% CGT discount may already have been lost.

In this case, approximately two months potentially made a difference of around $70,000.

For significant transactions, the timing of the tax conversation can materially change the outcome. Sometimes the most valuable advice happens before the transaction occurs.

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General information only. CGT outcomes depend on the taxpayer, asset, residency, acquisition and disposal dates, capital losses and other circumstances. This is a simplified example assuming the taxpayer is an Australian-resident individual, has no relevant capital losses, qualifies for the 50% CGT discount and the relevant additional taxable income is subject to the highest marginal tax rate plus Medicare levy. Companies are not generally entitled to the 50% CGT discount.

There is a big difference between preparing a tax return and providing proactive tax advice.

We recently reviewed the position of a farming client who had consistently been paying tax at relatively high marginal rates. The business was profitable and, when there was surplus cash, the client did what many people would naturally do: they put the money into ordinary term deposits.

There was nothing inherently wrong with that decision. But given the client was a primary producer, there was another tax-planning opportunity worth considering: Farm Management Deposits.

The opportunity: Farm Management Deposits

One strategy we discussed was the Farm Management Deposit (FMD) Scheme. Broadly, an eligible primary producer can deposit money into an FMD and claim a tax deduction for the amount deposited, subject to the relevant requirements and limits.

When the FMD is later withdrawn, the amount previously deducted generally becomes assessable income. This means an FMD is primarily a tax deferral and income-smoothing strategy, rather than a way of permanently eliminating taxable income.

That can be particularly valuable in farming, where income can fluctuate considerably because of seasonal conditions, commodity prices, input costs and other factors.

Consider a simple example

Suppose an eligible farmer has a particularly profitable year and $100,000 of surplus cash. They could put the money into an ordinary term deposit, but the deposit itself doesn't produce a $100,000 tax deduction.

Alternatively, subject to satisfying the FMD requirements, depositing the $100,000 into an FMD could potentially provide a $100,000 tax deduction in the year of deposit. When the FMD is later withdrawn, the amount previously deducted generally becomes assessable income.

The potential benefit is therefore in the timing. If an FMD is deposited during a high-income year and withdrawn during a significantly lower-income year, it can help smooth taxable income across different years while preserving cash for when the farming business needs it.

FMDs have important eligibility requirements

FMDs aren't available to everyone. Among other requirements, there are rules concerning who can hold an FMD, the amount of non-primary-production income the taxpayer can have, how much can be deducted, the maximum FMD balance and how long the deposit generally needs to be held.

For example, the total amount generally held in FMDs cannot exceed $800,000, and the taxpayer's taxable non-primary-production income generally needs to be less than $100,000 in the relevant income year. The particular farmer's eligibility and circumstances therefore need to be reviewed before implementing the strategy.

The planning opportunity comes before tax time

An accountant can prepare a completely correct tax return based on decisions the client has already made. If the client says, “We put $100,000 into a term deposit,” the accountant can record the interest, prepare the financial statements and lodge a technically correct tax return.

But nobody may have asked whether the $100,000 should have gone into an ordinary term deposit in the first place.

That's where proactive tax planning can make a difference. By the time the tax return is being prepared, many planning opportunities may already have passed.

Good tax advice shouldn't only ask, “What did you do last year?” It should also ask, “What are you planning to do, and is there a more tax-effective way of doing it?”

The value was identifying the planning opportunity while the client still had a choice about where the surplus cash went.

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General information only. Farm Management Deposits are subject to detailed eligibility requirements and tax rules. The appropriate strategy depends on the taxpayer's individual circumstances.