JUNE 2010
TAX minimisation is when a tax payer legitimately arranges their affairs to reduce the amount of tax they pay. It complies with both the letter and the spirit of the law. Tax planning is an essential part of wealth creation. Structuring salary, superannuation, investments and debt can create significant tax savings. With effective planning you can take control over the amount of tax you pay.
Tax planning can involve:
• Maximising your after tax income
• Remuneration packaging (salary packaging)
• Capital Gains Tax (CGT) management gearing
• Utilising franked dividends
• Borrowing to invest
• Small business and capital gains tax concessions.
• Transition to retirement strategies
Examples include analysing different tax options aimed at the minimisation of tax liabilities in current and future tax periods, such as whether to file jointly or separately; the timing of a sale of an asset; ascertaining over how many years to withdraw retirement funds; when to receive income; when to pay expenses and estate planning.
A correct structure is vital to managing the level of tax you pay annually. The type of entity through which owners choose to operate their business will ultimately determine the tax rate that will be applied to calculate income tax liability. Some of the issues to consider when choosing the right business structure are:
• The ability to distribute the income of the structure among a wide range of beneficiaries.
• The relevant marginal tax rates of your primary beneficiaries.
• The capital gains tax issues relevant to the structure, including issues relating to the disposal of assets by the structure and the disposal of interests in the structure.
• The applicable rate of tax payable by the entities involved in the structure. Such as the company tax rate currently at 30 per cent with the prospect of dropping to 28 per cent (recommended by the Henry review).
• The payroll tax and WorkCover liabilities associated with your chosen structure.
• The application of specific taxation rules such as the alienation of personal services income measures, and the provisions of Division 7A of ITAA.
• The ability to access various concessions available under the income tax legislation.
• Transition to retirement strategies for those taxpayers that are eligible, can generate greater after tax rates of return by keeping assets in the tax effective environment of superannuation, while still allowing access to a regular income stream from public or self-managed funds.
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