What is Tax Planning?

As the end of the financial year rapidly approaches, many clients start to consider their tax planning options.

However, what is tax planning?

Put simply, tax planning is organising your affairs to reduce your liability to income tax and other taxes and charges.

Your tax affairs do not have to be complex in order to benefit from tax planning. Even the most ordinary transactions may give rise to adverse tax consequences.

Tax planning can be a simple as making a choice available to you under the Income Tax Assessment Act or, as involved as applying capital gains tax concessions on the sale of an asset.

The objective of a tax planning strategy is not to reduce your assessable income. It is to find ways to have income taxed at a lower rate, defer tax on income or increase deductible expenses. In other words, the objective is to ensure that you pay no more tax than you legally have to.

Tax planning should be distinguished from tax evasion. Tax planning is legal. Tax evasion by means such as understating income or overstating deductions, is illegal.

As a taxpayer, you have the right to structure your affairs so that you suffer no adverse tax consequences.

Tax planning is not something which should be done only at the end of an income year. It is beneficial to engage in tax planning on an ongoing basis throughout the year and not just at year end. It may be difficult to improve your tax position if you leave your planning to the end of the income year.

For example, if you wish to commence a business, tax planning should occur at the pre-commencement stage. As a first step you should consider the structure through which you will operate the business. The choice of structure is important as it will determine the ongoing tax liability for business income during the operational phase and also the capital gains tax liability on the future sale of the business.

The old adage “failing to plan is planning to fail” is equally relevant to your income tax affairs where failing to plan means planning to pay more tax than you need to.

Your Baker Affleck accountant has the unique benefit of working with our Senior Tax Specialist, Juris Stega who has over 25 years experience in tax consulting. Juris has experience in taxation law with both the Australian Taxation Office and a number of large accounting firms. He provides taxation advice to a broad range of clients across various industries and has experience in personal income tax, corporate tax, FBT, GST, CGT small business concessions, international tax and tax audits.

For more information relating to your specific circumstances please contact your Baker Affleck accountant on (07) 5538 3088 or click here to send an email request.