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Sorry, I can't buy something right now. I'm working on my business. That is a myth. Throw that away. It's not the case.
We've gone from two years down to six months. So straight away, your banker, your accountant, everyone who's saying two years, gone, six months. There's over $500 million in turnover in that group of 10. At a certain point, you can't hide the profits though. And most business owners are allergic to paying tax.
Nerd alert! Property nerds. The home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. Welcome to another episode of the Property Nerds podcast. I'm Arjun Paliwal, your co-host here with Jack Fouracre.
So Arjun from InvestorKit, Jack from Fouracre Financial. Jack, how are you going, mate? Good, mate. How are you? Good, good.
Today is a unique topic. And if you're a business owner listening to this or an aspiring business owner listening to this, there's a lot of myths we're going to bust in the world of self-employed portfolio scaling. But I want to talk about when it comes to self-employed portfolios, the policy changes. Because there's going to be a couple of things that we'll talk about firstly, which are going to be more broad, generic, and someone who doesn't have that deep finance understanding in the business space will be like, oh, that's helpful. But rather than start off with that and then maybe all the property nerds like us who are listening in in business are kind of like, ah, I get that stuff, Arjun, already with self-employed.
Can you talk to me about the spicy stuff? Why don't we get into spicy stuff first? What have you seen lately in the landscape that's allowing business owners to get building their portfolio? Yeah, I'm actually surprised we haven't done an episode on purely self-employed in the past. But yeah, because we actually have a pretty decent ratio of self-employed to PAYG in our company.
I know it's a lot more than others. There's some brokers that they just do PAYG. But when I first got into the game, I was open to any and all business. That's why I do commercial and SMSF and we work with a lot of people that are self-employed. So if you are self-employed, I guess the new policies that are coming out or the changes in policy are coming out are more to do with the third tier lenders in the SMSF space.
All the other stuff about short-term ABN, you were PAYG or you're a sole trader, you've just started a company, you don't have a tax return, all you have is two quarters of business activity statements, all that stuff is available. Let's talk about that. Break that down. That's short, that's big, man. I know for you and your day, it's like, ah, that's just available, that's just normal.
But short-term business. So here's the... Okay, firstly, for everyone in business listening to this or you're about to start a business, this is what you're told, this is what 99% of you believe, and this is what 99% of you think. Same with contracting to an extent as well. But let's go business owners.
I've just started my business. Right now, here's what's on most business owners' minds. My accountant said I need to wait for two years until I get some tax returns to show some profits. Honestly, most of the time it's their banker. Got it.
My banker tells me I'm waiting for two years because I need to wait for two returns so they can see how I'm going, how I went, and then I can buy something. Sorry, I can't buy something right now. I'm working on my business. That is a myth. Throw that away.
It's not the case. Can you tell us about the multiple options they have for someone, say, who's just over one year in and then someone who's under one year in? Yeah, so one year in, you've got a lot of options. I mean, there's a big bank that'll take you on just one year ABN registration if you've got industry experience and a tax return, right? That's a major bank.
Heaps of non-major banks and third-tier lenders will look at that anyway, but you could even do with a major bank just six months ABN registration and they'll look at the wages that you're paying yourself. So a lot of times that's not enough though. A lot of times you would actually need to show two quarters of business activity statements, which that's going to show the income that's being generated from the business and you can use that to verify your income. That and a self-declaration, which I like to call a promise letter. It's not even an accountant.
It's you. It's the client. Trust me, bro. I'm doing good. I make this much.
And then you have to show one other form of income verification to match that, which could be even just showing them the business bank statements. Look at this money coming in or business activity statements. Look at the GST I'm paying. So already on that example, we've gone from two years down to six months. So straight away, your banker, your accountant, everyone who's saying two years, gone, six months.
In one year, the difference is you just get way more options. But in under one year, it's possible and has so many variances. Letters, basses, bank statements. Trust me, bro. Trust me, bro letters.
But in the SMSF space, they don't even load the interest rate. They'll treat, even if you have two quarters of bass, six months ABN, they'll give you the same rate as if you've been at the same job for 10 years. Right. So they're not going to smash you and go, oh, you're a risky customer. We're chucking you with way more interest rates.
Okay. So now let's go on to SMSF. If it's that short-term business owner, I'm not two years, I'm now one year in. We'll talk about that. And then we'll also go, I'm not one year in, I'm six months in.
I've got a healthy super balance. Even if you don't, by the way. That's rare for business owners. Healthy super balance. Healthy super balance, very rare.
But if you don't, you can do what I did. I caught up five years worth or four years worth of super contributions that I didn't make to the max contribution of. And then as did my wife. So suddenly our super was a couple of tens of thousands or a hundred something and went to hundreds of thousands because of this catch up. So immediately that's.
Did you do it to offset capital gains? Yes. I sold some investment properties and then I offset the capital gains by having that. So that helped. And also whenever I outpace a profit goal that I set in my business, the last FY we outpaced the profit goal I set.
So when I said that, I said, hey, accountant, I'm happy with the profit we did. If it's above this number, I'm fine to reinvest it in different ways. Tell me what I should do. And so then they told me, hey, we can catch up your super. And that's what we did.
We caught up my super. In the past, when my wife was in her own business, she caught up her super as well. But this is the thing. So now you've got your super balance there. Let's talk about that.
What's the servicing like for business owners for super? They've got their balance or they've caught it back up and they're not yet two years. They're maybe one year or less. How does it work? Ideally, I know business owners don't like to stay up to date with their super contributions, but ideally you'd want to have some history of super contributions.
Can it be a big catch up or do they want to see just a couple of names? You can catch up in a lump sum. And there's even lenders which still have really good options of not having to have any historic contributions whatsoever. But if you can demonstrate that you've got three quarters of solid bars, they know that if you've got a loan that's in your super now, you're going to have to put money in there to pay it. And you've got the money to do that.
So they're quite comfortable lending. Got it. And so now when we look at business owners, there's obviously this big unlock for people who've been listening to the podcast. And look, I do want to do one thing here. There are business owners listening to this podcast a lot.
There's many that work with us at InvestorKit. Two years, one year's less. That could be something for some people. But then there's also the super. Jack, when people are going, my banker doesn't say that.
My broker doesn't say that. How can people reach out to your team for getting this right finance support? Yeah, just reach out to 4acrefinancial. com. au or Mortgage Freeman on Instagram.
That's it. But I think as well, it's worth discussing structuring, purchasing in different entities, especially if you've got a business owned by a trust. Your accountant would love it. The way that you can move money around from your company account to invest in other entities and buy property. This is big.
It's huge. So now we've got the first half of the business owners, which is likely new business owners. Because if we're talking two years, one year's less, we're talking a high-skilled professional who wants to give it a crack. Yeah, that's right. Now, in this first half of the episode, you've already recognized that you can and you don't have to wait.
And so you can reach out to the team at 4acrefinancial. com. au. New business owners, that's a gift for you. The fact that you don't have to wait for two, you can do it much less.
You just need the right team. Now we're going to flip the script. Now we're going to the Some do it for fun, but mostly people also want to use this high successful profit to build wealth. We're not accountants. We're not advising you.
This isn't financial advice. But we see thousands of business owners. We speak to them. We help them with finance. We help them with property.
We help them grow wealth. In fact, I was just at the F1 over the weekend. And so at the time of this recording, like, you know, we're now to the F1. And there was about 10 friends of us, all clients. There's over $500 million in turnover in that group of 10.
And so some businesses doing over 200, some doing over 100, some doing 80, 90, some doing 20, 30. The main thing was this. I heard in that room the importance of structure. And one of the gentlemen in that room was very special to hear what he said. He said this.
He goes, Arjun, love the event that we did together as a group of commercial property clients. And I didn't love it because of the Qantas Club or the flight that you sorted out for us or the fact that we're watching the F1. Those are all nice. Appreciate it. Look, you can probably buy every ticket if you wanted to.
He didn't need me to get him a ticket, but we did it. But what he said was really special. He goes, I had conversations amongst this group of people that I wouldn't have with my family. I wouldn't have with my friends. And I wouldn't have in my offices or workplaces because, you know, my team may not get those things.
And so what we did by bringing these 10 business owners together was a special opportunity for people to talk about these things that they're often frowned upon or feel like they shouldn't talk about. So when you're listening to this podcast and you're hearing some of these structures and strategies, it is not me advising. It is not Jack advising. We're not giving financial advice. Speak to your accountants, professionals.
Or if you want to speak to us, we can introduce you to those people. But what we are saying is we see business owners with hundreds of millions of turnover, some with tens of millions and some in the millions. And they are looking at different ways to make sure that they're not paying more than they have to, but they're still paying a good share. They can't just pay nothing because Jack won't be able to get them finance. He gets them finance because they're paying taxes.
At a certain point, you can't hide the profits. Absolutely, right. Most business owners are allergic to paying tax. Right, because they're paying in so many useless ways, like payroll tax, right? Oh, don't get me started.
Sorry, guys. Sorry, I know we're going to taxes, but I have a half a million dollar plus payroll tax bill. You're going to make me cry. Right? My payroll tax bill is over more than half a million dollars per annum.
And so that means I'm just paying for jobs to be created in this country. Like literally just a payroll tax. It's not even like for the actual PAYG tax. It's payroll. But sorry, rant over.
I'm paying the fair share. But the main thing is, it's this. They want to optimize it. So let's talk about what we've seen. Again, not financial advice, just sharing what we've seen from all these successful business owners in how they get their profits out of their company and invest in real estate without a 50K drawing becoming 100 on paper now because the taxes are top tax bracket.
Talk to me about what you've seen business owners do when it comes to investing and using finance the right way. Yeah, yeah. So basically, like you said, trying to get the money out of the business account and into their personal name. It's very difficult to do that without paying a pretty large amount of taxes, especially when as a business owner, you're generally living a pretty decent lifestyle. You've got family, you've got a house, you've got a big mortgage.
That all has to come from after tax dollars as an individual. So like you said, building wealth by using the company profits. Like a lot of people might know this, might not know this, but when someone's looking at your borrowing capacity, we are taking into account profits from the business and like what you're paying yourself. But at a certain point, when you're buying a property in your personal name, but you're using profits from the business, that just means that the next year, the year after, you're going to have to pay yourself more and pay more tax just so that you can make those repayments on the property that's in your personal name. So speak to your accountant.
When you've got money in your company and you want to get it out and invest into a property that's owned by another company or by a trust, then there's a lot of ways to pay less tax than what you would if you had to get it out and pay for the mortgage in your personal name. So there's also the strategies that we talked about in the previous podcast. A lot of people do it that way to avoid having to pay themselves additional wages or additional money from their business into their personal name to make repayments on their debt. If they've got equity and they cash out more equity than they need purchasing in another entity and then just recycle that additional debt to make the repayments through that entity, that's a way that you could pretty much keep that gravy chain running. If you've got the profits in the business to keep tapping into equity and doing it that way, you can essentially just do that.
Yeah, and we see so many people going to commercial property like this where they go, open up a separate bucket company. They move their company profits to another company. That company profit is taxed at 5% more because it's an investing vehicle, not the 25%. It's now taxed at 30%, but at least it's not the 17% on top of that top up to yourself personally. So you've saved 17%.
And if we're talking commercial properties, like I think you were funding one recently, it was like six mil. So if we're talking five, six mil in commercial, 35% deposit, 30 for the property, 5% for cost of purchases. That's 2. 1 million, right? Now at that 2.
1 million, if you had to pay 17% top up on top of that, that is huge. Like, do you know what I mean? So if I look at the 2. 1 million, like when you look at the tax bracket on that, and if you go, you paid 47% tax instead, that is basically you having to earn 4. 46 million personally to save that 2.
1 million for the investment. Where instead, if you had the 2. 1 million and you had that at a 30% tax rate, you know, the difference is massive. So I'll give you those calcs again, right? So if you were to go 2.
1 million as your net money for that commercial property, and you needed to have say 53% of that money left over as an example, then you would have to earn 3. 962 million to have 53% of that leftover money, which equals 2. 1. But if suddenly you had that same 2. 1, but you had 70% leftover, not 53%, because you're not paying that 17% tax.
So then all of a sudden at that, you only have to earn 3 million. So you have to earn a whole million dollars more just because you got the wrong trust structure and you pulled that money out personally to fund the deposit. And then you thought you were smart, you're buying it in the separate company. No, no, it's smart for the future holding, but not smart for how you got the money out. You move the money from a 25% tax vehicle to a 47%.
And instead you could have moved that 25% to say a 30%. So that's the tune of a million dollars poof and thin air just because the structuring wasn't done right for money in the company moving to other areas. Now again, go speak to your accountant. But what this is doing from a finance perspective is that whether you put it personally on the company, you see profits, you can lend to it. That's not the issue.
But the thing is, do you want a year later to see a monster million dollar more tax bill? And do you want to see inefficiency? Do you want to see just because someone didn't set up a $3,000 to $4,000 entity for you separately and give you advice over a coffee or lunch from an accountant or a phone call and tell you to move that over, you literally paid a million bucks for incorrect drawdowns, right? So speak to your accountant, get the right advice as a business owner. But the main thing in this podcast we want to highlight from a business owner is when we see so many successful business owners we support, your structure matters.
And if you're going to buy an SMSF, if you're going to buy in trust structures, you're going to open up bucket companies, the two variations that you need to think about is number one, don't not show profits because the more profits you have, the more we can lend. But number two is that when you have profits, it's not the end of the world and don't think about how you're going to draw that personally. Remember, the tax can come back in other ways where you invest it from your company to other vehicles that make sure that the money doesn't move from 25% to 47%. It might move from 25, stay at 25, it might move from 25 all the way to 30.
