Tax Planning

Tax planning is all about being proactive and taking control of your financial activities to keep your tax to a minimum. The ATO encourages taxpayers to adopt legitimate tax planning strategies within the letter and spirit of the law. According to the ATO website, you should be especially cautious of the following types of tax arrangements because they are likely to attract ATO’s attention and get you into trouble:

• excessively large deductions or tax offsets when compared to investment income
• mixing private expenses with business expenses
• investing now, with no return until later years, if ever
• complex financing arrangements with no obvious commercial purpose
• creating a loan that may never need to be repaid, or
• claiming deductions that may never be paid for.

So, what is the difference between Tax Planning (legal) and Tax Avoidance/Evasion (criminal)?

The answer is rather simple, your intent.

It is considered tax avoidance/evasion when a person intentionally cheats the tax system and deliberately engages in schemes designed to treat paying tax as lip service. Even if these ill-intended tax schemes were structured within the law, it can still attract the ATO’s scrutiny. Tax avoidance/evasion in Australia is a serious crime with varying consequences including penalties, criminal convictions, fines and even prison sentences.

Tax planning is different for individuals, sole traders and business owners because their tax structures and available items for tax deduction are different. Most tax-deductible items are associated with business-related expenses. Tax planning for business owners varies accordingly to their specific industries because each industry has its own regulations and compliance guidelines regarding available tax deductions.

Business owners and sole traders generally have more to consider in tax planning compare to individuals. However, individuals would not neglect the importance of tax planning and forgo potentially thousands of dollars. It is best to consult an experienced tax accountant to review your current tax position and how tax planning can benefit you in the short, medium and long term.

At C Advisory, our integrated tax planning approach take into consideration your (complex) tax return and how we can legally minimise your tax to help you take control of your accounting and taxation matters.