What Is The Fine Art Of Tax Planning All About?
By definition, tax planning is the analysis of a financial situation with the end goal being to pay as little tax as possible - so what do you need to know?
However, it’s important to know the difference between effective tax planning and tax avoidance, as the latter will attract some serious unwanted attention from the Australian Tax Office. While all Australians have the right to arrange their financial affairs in a manner that will benefit them by paying as little tax as possible, unlawful tax avoidance schemes that involve the deliberate exploitation of our tax and superannuation systems could see you with a hefty tax bill or even a jail term.
Although tax planning is considered to be a key element of long term wealth creation, it’s equally as important to understand the do’s and don’ts of the tax system - so where do you start?
Examples Of Effective Tax Planning While paying tax is more or less a part of life in Australia, you do have some degree of control in regards to how much you pay - regardless on how much you earn. When queried about the tax minimisation schemes he deployed during a federal investigation into the media industry in 1991, the late Kerry Packer managed to articulate his opinion on the tax in a way that many Aussies identified with at the time - and still do now.
“Of course I am minimising my tax. If anybody in this country doesn’t minimise their tax, they want their heads read because as a government - I can tell you you’re not spending it that well that we should be donating extra!”
Whether or not you agree with this statement in its entirety, it’s fair to assume that most of us wouldn’t mind a little extra in our own pockets, as opposed to handing it over to the tax man. If you’re considering ways to reduce your own tax outgoings, tax planning is generally categorised into three formats.
Permissive: Tax planning which falls under the framework of the law
Purposive: Tax planning with a specific objective
Long And Short Range: Tax planning executed at the beginning or the end of the fiscal year
When it comes to tax the general rule of thumb is that the more you earn, the more you pay. However, there are strategies well within the law that businesses and brands are able to utilize in order to reduce their tax obligations, and can include the following:
Maximising your after tax income
Remuneration packaging (salary packaging)
Capital Gains Tax (CGT) management
Negative gearing
Investing in shares that offer 100% franked dividends
Borrowing to invest
Small business and capital gains tax exemptions (particularly superannuation)
Government stimulus packages (JobKeeper, Instant Asset Write Off)
Claiming prepaid expenses at the end of the financial year
Generic tax planning advice
In order to best benefit from the fine art of tax planning, it usually does require some forward thinking and the help of a qualified professional - as one minor error in your declarations could see the potential benefits morph into a red flag against your name from the relevant government bodies.
Start Tax Planning With A Licenced Professional
The reality of trading in Australia is that it truly is a jungle out there. According to the Australia Bureau of Statistics, more than 60% of small businesses cease operations entirely within their first three years of trading. One of the most common reasons that they fail is due to a lack of cash available to meet their expenses, particularly within the first six to twelve months - so what can you do to avoid becoming another statistic? The good news is that it’s simply a matter of planning ahead.
If you are looking for assistance in setting up your business and developing a tax planning system that works for you and not against you, then it’s important to speak with an advisor or accountant for the best advice on how to move forward.
At Muro we are more than just accountants. We work with our clients to help them build a business and a lifestyle that they love. We believe by creating an ongoing and easy to understand business and financial ecosystem, this enhances their business acumen allowing them to make informed and inspired decisions to set and surpass their long term goals that go beyond just the financial ones.
Get in touch with us at Muro today to ensure that you’re on the right path for success. With offices in Brisbane and the Gold Coast, we work with clients right across Australia.