Smart Tax Strategies: Building Wealth vs. Spending for Deductions

Many business owners and farmers are laser-focused on minimising tax, and rightly so—no one wants to pay more tax than necessary. But there’s a common trap that can hinder long-term wealth creation: spending money purely for deductions instead of strategically reinvesting profits.

If your approach to tax planning is centred around buying more expenses just to get a tax deduction, you could be limiting your ability to grow assets such as superannuation, managed funds, shares, or even your farm.

Profit Drives Wealth—And That Means Paying Some Tax

To grow your business and personal wealth, you need to make a profit. Profit is what allows you to invest in assets, increase your equity, and borrow when needed to expand.

Yes, paying tax means you’re profitable—but avoiding profit just to reduce tax is a mistake. The corporate tax rate for most small to medium businesses structured as a company is 25%, meaning:

• For every $100,000 in profit, you pay $25,000 in tax, leaving you with $75,000 to build wealth.

• But if you spend $30,000 on unnecessary expenses just to lower tax, you only reduce your tax bill by $7,500—but you’ve spent $30,000 to do it.

Instead of spending for the sake of deductions, focus on how that money can work for you long-term.

Scenario: Spending to Avoid Tax vs. Investing for Growth

Let’s compare two companies, both with $100,000 in profit before June 30.

Company A: Spends $30,000 to Reduce Tax

• Buys multiple small expenses, spending $30,000 before EOFY.

• Saves $7,500 in tax (25% of $30,000).

• But now has $30,000 less in cash—leaving only $67,500 in the bank.

Company B: Pays the Tax, Keeps More to Invest

• Pays $25,000 in tax on the full $100,000 profit.

• Still has $75,000 in cash available.

• Uses $30,000 to invest in superannuation, shares, or managed funds—which generally appreciate in value over time.

Instead of spending money on things that depreciate or provide no lasting value, Owner B has $30,000 working for them—either compounding in investments or strengthening their equity position for borrowing power.

Buy Smart: Is It Helping Your Business?

Now, if these purchases are genuinely helping your business grow, improving efficiency, or generating more revenue, then absolutely—go ahead! Investing in better technology, automation, or infrastructure that streamlines operations can pay off in the long run.

But if you’re only spending to get a deduction, you’re not really saving—you’re just spending cash that could be working harder for you elsewhere.

Building Wealth Instead of Just Reducing Tax

1. Paying Down Debt: Strengthening Your Borrowing Power

One of the best ways to use profit strategically is paying down debt to improve your equity position.

• Banks assess your ability to borrow based on profitability and equity.

• By reducing debt, you increase your financial strength and make it easier to borrow for future investments, whether it’s land, farm improvements, or other assets.

• You also reduce interest costs, meaning more of your cash goes toward building wealth instead of servicing loans.

2. Superannuation: Tax-Efficient Wealth Building

Contributing extra to superannuation can be a smarter way to reduce tax while ensuring long-term financial security.

• Concessional (before-tax) contributions are taxed at 15%, which is often lower than your business tax rate of 25%.

• Rather than spending profits on depreciating assets, super grows over time with compounding returns—creating wealth for retirement.

3. Considering Investment Options

Rather than spending on deductions, it may be beneficial to explore investment options such as managed funds, ETFs, or shares, which can help grow wealth over the long term. These types of investments have the potential to generate returns and dividend income, keeping your capital working for you.

For tailored investment advice suited to your financial goals, it's best to consult a licensed financial advisor.

4. Buying More Land or Expanding Your Farm

For agribusiness owners, expanding operations by purchasing more land or investing in productivity improvements can be a stronger long-term move than buying short-term expenses. Land is generally a appreciating asset, and strategic expansion should lead to higher yields and profits.

Final Thought: Profit is Power—Don’t Waste It

Profit is not the enemy—it’s what allows you to build wealth, invest in opportunities, and create financial security. And yes, paying tax is part of that.

Instead of making purchases just for deductions, rethink how you use your profits. Strategic tax planning should involve a mix of saving, investing, and growing assets rather than simply reducing tax at all costs.

By choosing wealth-building strategies over unnecessary expenses, you can create financial security, build assets, and achieve long-term prosperity.

Need a Smarter Tax Plan? Let’s Talk

At Frontgate Advisory, we help business owners and farmers develop tax strategies that grow wealth—not just minimise tax. Whether it’s structuring your business, optimising super contributions, or planning investments, we can help you make the most of your hard-earned profits.

Get in touch today to book a tax planning session and start making smarter financial decisions for the future.

Disclaimer: This content provides general information only, current at the time of production. Any advice in it has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material.