The purpose of tax planning is to discover how to accomplish all of the other elements of a financial plan in the most tax-efficient manner possible.
Tax planning is the art of arranging your affairs in ways that postpone or avoid taxes. By employing effective tax planning strategies, you can have more money to save and invest or more money to spend. Or both. Your choice.
Put another way, tax planning means deferring and flat out avoiding taxes by taking advantage of beneficial tax-law provisions, increasing and accelerating tax deductions and tax credits, and generally making maximum use of all applicable breaks available under our beloved Income Tax Assessment Act.
Is tax avoidance legal?
Tax avoidance is a practice of using legal means to pay the least amount of tax possible. This is different to tax evasion which is the practice of using illegal methods to avoid paying tax. There is also a difference between avoidance and tax planning as paying minimal tax is not necessarily a sign of avoidance.
In the words of the late Kerry Packer at the Parliamentary Print Media Inquiry of 1991
“I pay what I am required to pay, not a penny more, not a penny less. 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”
Tax Planning in Business
Deduct – A deduction is a claim to reduce your taxable income. A deduction will reduce your tax bill by an equal amount to your marginal tax rate.
Defer – A deferral strategy is to try to push having to pay tax now into future years.
Divide – Often called income splitting, dividing taxes implies the ability to take an income and spread it among a number of different taxpayers.
Australian tax law is extremely complex, complicated and forever changing. Breaching tax laws and regulations can result fines and other penalties. If you are at all unsure about something don’t hesitate to call us for advice.