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10 Tax Planning Strategies to Minimise your Tax Bill

  1. Plan Ahead.  The most important strategy with tax minimisation is to plan ahead.  Meet with your business advisor at least annually focusing specifically on tax planning.

  2. Consider starting your own Self Managed Super Fund.  SMSF’s are taxed at only 15% and there are a number of other tax breaks available in these entities.

  3. Spend up before the end of the financial year bringing forward any of next year’s spending that can be used as a tax deduction before 30 June.

  4. Companies that are small business entities pay a flat rate of tax of 27.5% this year, and the view of the government is to reduce this further over time to 25%.

  5. Plan to earn capital profits rather than normal income.  Individuals get a 50% discount on capital gain tax when they hold the asset for greater than 12 months.

  6. Use a Family Discretionary Trusts to divert income and protect your assets.  Trust provide great flexibility in allowing your to divert your income to family members paying a lower rate of tax.

  7. Make sure you use the best method of claiming Motor Vehicle Expenses.  There are numerous ways of claiming these expenses and the outcomes are substantially different depending on your circumstances.

  8. Investment Properties are very popular in Australia due to the ability of claiming the negative gearing strategy which allows you to claim the losses on your rental property against your other income thereby reducing your tax.

  9. Tax Offsets and rebates offer great opportunities to reduce your tax liability.  Franking Credits from shares and a range of other offsets should always be investigated.

  10. Salary Sacrificing, especially of superannuation contributions is a useful strategy to reduce tax and provide for retirement.

TAX PLANNING A MUST

THE ANNUAL TAX PLANNING MEETING

The right tax planning mind set.

There are many ways to structure your affairs to save tax lawfully.  Tax planning is the legitimate manner in which you can be efficient in minimising your tax liability.

“Tax avoidance” is the term used when you deliberately set up contrived schemes and structures solely for the purpose of obtaining a benefit.  “Tax evasion” is when you try deliberately hide income from the Australian Taxation Office.  Both of these processes are actively pursued by the ATO.

Tax planning should be viewed with the purpose of increasing your financial position.  Spending money needlessly on assets and others items you or your business don’t need will often reduce your wealth position.

Have the right mind set. Some business people battle to try to keep their incomes low each year to try to save some tax.  The best mind set is to aim to have your business perform very successfully and generate high incomes. Would you rather earn $1m and pay $450k tax or would you rather earn $100k and pay $30k in tax.  It is a mind shift and it is the overall position that counts.

Concord Tax are always looking for opportunities for their clients to save tax, but we are also always looking for opportunities to  assist you to increase your wealth.

You should calendar an annual tax planning meeting with your accountant/business advisor.  This meeting has the potential to save you thousands of dollars in tax payable.  If you do not do this now you should consider organising this meeting.

This meeting will ordinarily take between one and two hours.

Maximise your allowable work related deductions.

Motor Vehicle, work related travel, work related accomodation, uniforms, industry specific clothing, protective clothing, laundry/maintenance of this clothing, union fees, membership of professional organisations, tools of trade, work related office equipment, work proportion of laptops, work proportion of mobile phones, home office electricity, other home office expenses, stationery, self-education expenses, allowable donations, income protection insurance, and cost of managing taxation  affairs.

Keep detailed records to manage work related expense deductions.

Successive governments have been reducing or removing these valuable tax reduction measures over recent years.  Current Tax Offsets include.

Zone Tax Offset – Remote Taxpayers can reduce your tax by up to $1,173.

Small Business Income Tax Offset – Can reduce your tax by up to  $1,000.

Low Income Tax Offset – Can reduce your tax by up to $445.

Private Health Insurance Rebate – Can reduce your tax by up to 30% of your premium.

Seniors and Pensioners Tax Offset – Significant reductions dependent upon income and circumstance.

Australian Super Income Stream Tax Offset.  If you receive income from an Australian super income stream, you may be entitled to a tax offset equal to:

  • 15% of the taxed element, or
  • 10% of the untaxed element.

Super Contributions on behalf on your spouse.

Contributions to a complying superannuation fund or a retirement savings account (RSA) on behalf of your spouse (married or de facto) who is earning a low income or not working, you may be able to claim a tax offset.

You may be entitled to a tax offset of up to $540 per year if you meet all of the conditions.

The term “entity” has a very broad meaning and can include different people, companies, trusts, partnerships, and superannuation funds.

The common and very simple example of this is when a couple make income producing investments in the name of the partner on the lower tax rate, often a non-employed spouse.

The complex strategies may involve structures like a discretionary trust, the trustee may be able to choose the best way to distribute income between several beneficiaries which may include people or companies.

There are many ways to move income between tax years.  If you are working now but likely not to be working in a few years (retired, holiday, ill etc), then you may be on a lower tax rate then.  It might be sensible to defer the sale of any assets trading at a capital gain until the lower income year.

Other times, people may wish to bring forward income if they expect a substantial increase in taxable income in the future.

Deciding where to place your money to invest can have a significant impact on the tax you will pay on your investment.

For example, if you select the share market, many shares will have imputation credits attached to them.  This means you will get the benefit of the amount of tax which the company has paid in earning these profits.  This is currently 30% for fully franked dividends.

When you invest in investment properties you may be able to claim negative gearing deductions during the period of the rental of the property and when you sell you will obtain 50% capital gains tax-free if the property was held for longer than 12 months.

It is wise to consult a financial advisor on these matters prior to going ahead with any significant investment.

Part of the consideration of any tax planning strategy, is the need to consider the costs of so doing.  These include accounting, legal and advisor fees.

The benefits of implementing an excellent strategy may not be worth the effort in terms of time and money spent on creating and maintaining the strategy unless you have a fairly high income and/or a big portfolio.

On the other hand, there are a number of simple strategies that can be relatively easy and cheap to implement.

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