I think your accountant is forgetting you do do genuine education and research.
To qualify for a research tax incentive, I think the research company has to have a budget of at least $20,000 and it qualifies if:
Core R&D activities are experimental activities:
whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work
that is based on principles of established science; and proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions
that are conducted for the purpose of generating new knowledge (including about creating new knowledge or improved materials, products, devices, processes or services).
It may be an advantage if you can move the costs of buying equipment, parts, PCB prototyping, etc to the research company.
I think your accountant is forgetting you do do genuine education and research.
He's not. I can set up an educational organisation, but ultimately it comes down to how much you can claim and in what way based on your expenses, income sources, wage apportionment etc. It's hard to explain in detail.
To qualify for a research tax incentive, I think the research company has to have a budget of at least $20,000 and it qualifies if:
Core R&D activities are experimental activities:
whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work
that is based on principles of established science; and proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions
that are conducted for the purpose of generating new knowledge (including about creating new knowledge or improved materials, products, devices, processes or services).
It may be an advantage if you can move the costs of buying equipment, parts, PCB prototyping, etc to the research company.
That's called the R&D tax concession (unless you are talking about another thing entirely that I'm not aware of?) and is a different thing. I had my accountant calculate that the other month and what I can gain, and it's not a huge amount but worth registering for and doing. It's a very tricky and non-straight forward calculation.
It doesn't matter how you move the money either, those expenses are just ordinary business expenses anyway, claimable under my current scheme or any other scheme.
Every dollar I spend on equipment and services etc is automatically a business expense already.
My company as it stands doesn't pay a huge amount of tax anyway (but still the 30% company tax rate of course) because the actual taxable business profit after all expenses and all wages is not huge.
And regardless of how you do it, or what scheme you set up, you can't avoid personal income tax when you takes wages and franked dividends. The tax max has all bases covered.
In the U.S. perhaps the biggest benefit of being a non-profit is that it allows people to give you money or items and then deduct that from their taxes as charitable giving.
I believe that is often the only reason to do it. For example my wife recently applied for and got non-profit status for our sons school PTO. It's a win-win since it encourages more donations while lowering the tax bill of those donating.
It's not about personal financial gain for the person running the non-profit organization- or at least it shouldn't be!
Perhaps in this case it could encourage donations via Patreon, etc at least for the Aussies - I'm not sure how that works internationaly.
I am not much good on tax, but my understanding is that if you spend $20,000 on R&D, you can claim a tax offset of 43.5% or $8,700. The incentives aren't as good as they used to be when you could get over 100% offsets.
I think you can claim the R&D part of the EEVblog business anyway, but the paperwork can be difficult. If you have a separate company that only does R&D work, it may be easier to manage.
I know absolutely nothing about being an Educational body, so I will leave that to others.
Edit: I was involved with a company that moved its design team to a new research company. This was when there was a 125% offset. It did involve moving to a different building, and there was no overlapping staff. That was all to make it a clear as possible to auditors that our resources were not shared by the main company in any way (even though we were often in the manufacturing company sorting out production problems.)
Well all I can say Dave is your company would be more trustworthy and law-abiding than some of the other "educational institutions" and "religious organisations" which have previously set up shop in Australia.
Also, come next Census, I'd be more than happy to list my religion as being a follower of "Dave Jones' Group of Mentors". Alternatively "Null" sounds just as good. ;-)
I believe that is often the only reason to do it. For example my wife recently applied for and got non-profit status for our sons school PTO. It's a win-win since it encourages more donations while lowering the tax bill of those donating.
Yes, but that's not a great as many people think, and is actually a common misunderstanding about tax deductible items.
Example
Assume your taxable income after all deductions is $100,000, and you pay 25% tax, or $25,000
Donating $10,000 to charity reduces your taxable income to $90,000, and you now pay $22,500 tax
Ok great, but you've spent $10,000 to save $2,500 in tax.
But you feel good because at the end of the day you've only paid $7500 and the charity gets $10,000
Believe it or not a lot of people think that they get the whole $10,000 back
Believe it or not a lot of people think that they get the whole $10,000 back
Same goes with "business expenses". People buy computers, laptops, phones, stationary etc... for the sake of it, thinking they can "just claim it back on tax". But you only get the GST component back (and a portion of any reduction in value depending on the asset).
Sure, if it's something you're going to buy anyway and you can make it work for you in terms of a genuine work related expense, then great, you lower your taxable income, get a little back and possibly eliminate paying the Medicare levy surcharge.
Otherwise it's a waste of money. You're better off just putting the money in the bank.
I am not much good on tax, but my understanding is that if you spend $20,000 on R&D, you can claim a tax offset of 43.5% or $8,700. The incentives aren't as good as they used to be when you could get over 100% offsets.
I'm afraid it doesn't work like that, it's much sneakier (to the advantage of the ATO of course).
This is the example from my accountant who had to spent a long time with the ATO to have them explain it:
Best shown by this example :
Gross sales 200,000
only expense employee 80,000
----------
net taxable profit 120,000 normal tax @30% $36000
(assume half the wages above are R and D ie 40,000)
then add 40,000 back to profit 40,000
---------
new taxable income is 160,000
tax at 30% on $160,000 48,000
less $40,000 R and D @ 45% 18,000
------------
FINAL TAX PAYABLE $30,000 new $30,000
-----------
tax saving $6,000
So you pay $40k in R&D costs and only get back $6k, or 15%.
As I said, still worth it, but not the 45%/43.5% you expect.
The tax office equivalent to "banner specs"
Yes, but that's not a great as many people think, and is actually a common misunderstanding about tax deductible items.
Yes, of course. I didn't say or mean to impky that they saved money, only that they reduced their tax bill. That fact in itself motivates some people to give more. Win-Win because rhey get to feel good about giving and feel good about paying less taxes!
Then again, maybe you're right, maybe some people are dumb enough to think they actually save money by giving it away.
Believe it or not a lot of people think that they get the whole $10,000 back
Same goes with "business expenses". People buy computers, laptops, phones, stationary etc... for the sake of it, thinking they can "just claim it back on tax". But you only get the GST component back (and a portion of any reduction in value depending on the asset).
You see them going crazy at the computer markets on the 30th June all with arms full of gear saying exactly that!
Then again, maybe you're right, maybe some people are dumb enough to think they actually save money by giving it away.
You'd be surprised at the number of people I know who actually think "I'll get it all back on tax"
You still get the VAT back, and the tax that corresponds to its cost.
This drops the actual cost significantly.
It does not make sense to spend money just for the sake of it, but if you need the equipment and can make money out of it, then it's a no-brainer.
I believe that is often the only reason to do it. For example my wife recently applied for and got non-profit status for our sons school PTO. It's a win-win since it encourages more donations while lowering the tax bill of those donating.
Yes, but that's not a great as many people think, and is actually a common misunderstanding about tax deductible items.
Example
Assume your taxable income after all deductions is $100,000, and you pay 25% tax, or $25,000
Donating $10,000 to charity reduces your taxable income to $90,000, and you now pay $22,500 tax
Ok great, but you've spent $10,000 to save $2,500 in tax.
But you feel good because at the end of the day you've only paid $7500 and the charity gets $10,000
Believe it or not a lot of people think that they get the whole $10,000 back
Another way to look at it: You have just forced the government to pay $2500 to your favorite charity. A charity they may not like... The NRA comes to mind...
Another way to look at it: You have just forced the government to pay $2500 to your favorite charity.
No, you forced tax payers to donate to your favorite charity.
Another way to look at it: You have just forced the government to pay $2500 to your favorite charity.
No, you forced tax payers to donate to your favorite charity.
Yup! That's ok too!
Knowing that some of the taxpayers absolutely hate your favorite charity is just icing on the cake!
Living in the ultra-liberal state of California, I get absolutely giddy about forcing them to sponsor my favorite charity!
Second cool thing: It applies to State taxes as well. Kind of a two-fer...
Another way to look at it: You have just forced the government to pay $2500 to your favorite charity.
No, you forced tax payers to donate to your favorite charity.
Yup! That's ok too!
Knowing that some of the taxpayers absolutely hate your favorite charity is just icing on the cake!
Living in the ultra-liberal state of California, I get absolutely giddy about forcing them to sponsor my favorite charity!
Second cool thing: It applies to State taxes as well. Kind of a two-fer...
The problem is I have done some IT work for charities and I have seen the way money is wasted. I am talking about hundreds of thousands of dollars for charities that are complaining they are absolutely desperate for money. One of the big problems is they accept a free top-of-the-line service/hardware/whatever totally funded a major donor company. The boards of the charities are often immensely proud of landing this killer deal. Costs nothing! What could go wrong?
Well after a few years, the donor company stops the payments and then the charity has to pay itself for this unnecessarily expensive and over-complicated service that they now totally depend on. I have seen small charities paying bills of over $60K a year for services that they would be better off without because of this problem.
In many cases there are really excellent open source alternatives that would do the job far better. But the problem is the open source software is not free (there is some real labour involved in setting it up and running it) and it is hard to get donations for installing and running free software. It seems to often be much easier for charities to get $100K solutions approved/funded then for superior $5K solutions to solve the same problem.
I don't know what can be done about it. It is just very frustrating seeing people who really need help from charities, but the money that could have helped them has been thrown away.
My partner was employed by a couple of large UK charities for a while, she now refuses to have anything to do with the two she worked for after seeing how they poured money away on IT and other stuff in head office.
Another way to look at it: You have just forced the government to pay $2500 to your favorite charity.
No, you forced tax payers to donate to your favorite charity.
Yup! That's ok too!
Knowing that some of the taxpayers absolutely hate your favorite charity is just icing on the cake!
Living in the ultra-liberal state of California, I get absolutely giddy about forcing them to sponsor my favorite charity!
Second cool thing: It applies to State taxes as well. Kind of a two-fer...
The problem is I have done some IT work for charities and I have seen the way money is wasted. I am talking about hundreds of thousands of dollars for charities that are complaining they are absolutely desperate for money. One of the big problems is they accept a free top-of-the-line service/hardware/whatever totally funded a major donor company. The boards of the charities are often immensely proud of landing this killer deal. Costs nothing! What could go wrong?
Well after a few years, the donor company stops the payments and then the charity has to pay itself for this unnecessarily expensive and over-complicated service that they now totally depend on. I have seen small charities paying bills of over $60K a year for services that they would be better off without because of this problem.
In many cases there are really excellent open source alternatives that would do the job far better. But the problem is the open source software is not free (there is some real labour involved in setting it up and running it) and it is hard to get donations for installing and running free software. It seems to often be much easier for charities to get $100K solutions approved/funded then for superior $5K solutions to solve the same problem.
I don't know what can be done about it. It is just very frustrating seeing people who really need help from charities, but the money that could have helped them has been thrown away.
Maybe set up a charity whose purpose is to provide the service of installing and operating free software to other charities?
Maybe set up a charity whose purpose is to provide the service of installing and operating free software to other charities?
That would actually be a good cause. I too have seen small charities spending 10's of k on specialist 'charity' software. Because... Well that's what they are told they need by the 'experts' or because others in the professional charity world have have heard of it or used it. There is one product from the UK which springs to mind. It might be useful if you are the likes of Oxfam, with huge budgets and salaries (at the management) level to match, but that's another rant.
It it a total over kill when excel and access can do the job. If they want to do direct debiting, when then there dedicated products available for a few hundred, no need to spend the 40-50k plus on charity software.
I would even extend this to accounts software, (at a lower cost) I have seen charities buying fill version of the likes of Sage, and I have to ask them why. They are cash in and cash out. There is normally no invoicing, VAT returns or stock code control etc.
Actually there is a special charity version of Sage, but the sales man has no interest in flogging it!
1) The primary goal of my EEVblog Youtube channel for the last 8 years
has been engineering and scientific education. It's basically all the
channel does.
Isn't the primary goal to feed Dave & family ?
If you didn't need the money, whould you still do it?
How is this different from a teacher or freelance textbook writer ? They also get paid to provide educational material.
And once you add the commercial aspects, advertising, equipment donated for review etc. I suspect it would get very messy and probably not worth the paperwork & hassle.
Not to mention the paperwork and accounting hassle if you some day decided, or were forced due to circumstances, to pack it in and sell all the donated gear and/or the forum/domains.
Certainly Dave and family need an income - and there are parts of what Dave does that does generate revenue. The thinking, as I understand it, is to examine the possibility of segmenting the activities into more than one entity where there might be some benefits in doing so.
So far, the indications aren't exciting.
1) The primary goal of my EEVblog Youtube channel for the last 8 years
has been engineering and scientific education. It's basically all the
channel does.
Isn't the primary goal to feed Dave & family ?
If you didn't need the money, whould you still do it?
Yes, it's my hobby as well as my career. I did it for years before it became my full time job, earning practically nothing from it. And as with most successful Youtubers (at least back in the day), started the channel with absolutely no intention or thought it would be anything but a fun thing to do.
Whilst it is now my full time job, it is still essentially just my hobby that happens to bring in enough income to live off.
How is this different from a teacher or freelance textbook writer ? They also get paid to provide educational material.
A teacher works for an educational institution, they are not
the educational institution.
There is nothing stopping me declaring and structuring myself as an educational organisation and legally paying no income tax. It simply becomes a matter of whether or not it's actually financially beneficial to so. It turns out the answer is likely not, for various reasons.
The problem is I have done some IT work for charities and I have seen the way money is wasted. I am talking about hundreds of thousands of dollars for charities that are complaining they are absolutely desperate for money.
Yep! This is why I only donate to my local
NSW Rural Fire Brigade,
Surf Live Saving NSW or
NSW Police Legacy. It goes directly to those who support our community, without the massive overheads and waste of the other charities.
There is nothing stopping me declaring and structuring myself as an educational organisation and legally paying no income tax. It simply becomes a matter of whether or not it's actually financially beneficial to so. It turns out the answer is likely not, for various reasons.
But presumably evan if the institution pays no tax, you'd still pay income tax on what the institution pays you.
There is nothing stopping me declaring and structuring myself as an educational organisation and legally paying no income tax. It simply becomes a matter of whether or not it's actually financially beneficial to so. It turns out the answer is likely not, for various reasons.
But presumably evan if the institution pays no tax, you'd still pay income tax on what the institution pays you.
Sorry, yes, I meant the educational institution pays no company tax on profits. They call it income tax, but it's not an employees personal income tax, a company pays tax on the "taxable income" after expenses, i.e. the profit.
It's basically not possible to avoid personal income tax unless you earn under $18k / year, and of course you have to live on
something.
So the educational institution could keep earning profits and building up cash until the cows come home and pay no tax on it, but that doesn't do the owner (me) any good personally if I can't use that money personally. The company can't legally pay my personal household bills, as that would be attract FBT (Fringe Benefit Tax).
AFAIK the only way around personal income tax and companies is to set up a "foundation" and actually remove yourself form the taxation system entirely. The "foundation" then essentially pays for all your living needs (house, car, food etc). But it's a very sketchy way to do things as foundation actually operate outside the taxation system.
https://www.ato.gov.au/Media-centre/Media-releases/ATO-reviews-the-legitimacy-of-not-for-profit-set-ups/