Tax planning is the process of organizing the affairs of a taxpayer so that, as far as legally or commercially possible, the liability of the taxpayer to income and other taxes is minimised. – (definition from the Australian Master Tax Guide)
Some common strategies of reducing ones tax liability are:
- Reduce assessable income
- Increase deductions and offsets
- Divert income
- Select a tax planning vehicle
The implementation of these strategies differs from taxpayer to taxpayer depending on many variables. Tax planning should address each strategy and identify whether they are appropriate to each taxpayer undergoing the planning process.
Some examples of permanent tax savings recommended to our clients
We identified that our client’s tax position allowed her to take full advantage of the co-contribution rules and advised her to make an undeducted contribution of $1,000 into her superannuation fund before the end of the financial year. The government then made a contribution of $1,500 into the fund on her behalf.
A return well in excess of 100%!
TAX RATE CHANGES
By our review of a client’s profit and loss for the 9 months we were able to project that the tax bill was going to be big. We then identified expenses which could be incurred during this year rather than in the following year. The effect of this strategy was to realise a permanent tax saving due to the fact that tax rates would be less in the next year.
ADDITIONAL SUPERANNUATION BENEFITS
Our client is the owner of a business services company. He had made some good profits during the year. The strategy which was appropriate for him was for his company to make an extra contribution on his behalf into his superannuation fund. This reduced the company’s taxable income to NIL and the superfund was taxed on the contribution at 15%. A permanent saving of 15% was achieved in this case.