Is a term deposit the best option for my profits?

We work a lot with small business owners heading towards retirement, and we’ve recently done a video series talking about all things business, wealth creation, retirement planning and more - make sure you check it out on our Youtube channel.

Through this series we’ve had a few questions, and one of those is: ‘I’ve got a company and made some good profits - but I don’t want to take that money out because I’m worried I’ll pay too much tax. Is putting it in a term deposit within my company the best thing to do?’

It’s definitely an option, but our general advice would be no, it’s not the best way to go - and there’s some reasons why.

We don’t want our investment assets sitting in the same bucket as our business assets. If there’s ever an issue with the business - a risk, or you get sued, or there’s an employee issue for example - any wealth we have sitting within the business is at risk.

Companies also don’t get a lot of the investment discounts that trusts or self-managed super funds do, so from an investment perspective there are other smarter ways to invest surplus profits outside of your business than within it.

We also want to take future tax implications into account, so we don’t end up having to pay large amounts of capital gains tax down the track - which can happen if you have term deposits sitting within your company without a tax minimisation strategy.

It’s certainly wise to hold a cash buffer in your business, you definitely want to make sure you, your staff and your business is protected in volatile times - but in terms of investing we probably want to be looking at some other options that help your money work smarter, not harder.

When thinking about moving investment reserves out of your business there are tax effective ways to do that and we can certainly walk you through some of those if you’re interested - feel free to get in touch via our website www.financialedgegroup.com.au for a chat.