Tax planning vs. tax avoidance: why the difference matters

 

When it comes to helping clients minimise tax, the difference between tax planning and tax avoidance isn’t just technical—it’s about ethics, intent, and risk.

Tax planning: smart, strategic, and compliant

Tax planning is the legal and ethical process of organising your clients’ financial affairs to legitimately reduce their tax liability. It’s proactive, strategic, and aligns with the intent of the law.

It involves:

• Choosing the right business structure
• Timing income and expenses effectively
• Accessing available deductions, offsets, and concessions
• Planning for superannuation contributions and asset ownership

In other words, it’s the kind of work that adds real value to your clients and positions you as a trusted adviser.

Tax avoidance: technically legal, ethically questionable

Tax avoidance, on the other hand, involves using the tax system to reduce tax in ways that may be within the letter of the law – but go against its spirit. It often relies on complex schemes, loopholes, or aggressive structuring that push right up to the edge of legality. It’s not tax evasion (which is outright illegal), but it’s risky. The ATO can apply anti-avoidance provisions if it believes the main purpose of an arrangement is to avoid tax.

What do people think about tax avoidance?

Community attitudes toward tax avoidance are mixed – and shifting:

• Some see it as smart financial management.
• Others see it as unethical behaviour that shifts the tax burden unfairly.
• Public reaction often depends on how aggressive or artificial the scheme appears, and whether the taxpayer is seen as “doing their fair share.”

In high-profile cases (especially involving large corporations), tax avoidance can trigger public backlash, reputational damage, and even lead to law reform. For advisers: this is where you make a real difference. Clients don’t just want to pay less tax – they want to do it the right way.

Your role is to:

• Educate them on the difference between tax planning and tax avoidance
• Build strategies that are effective and defensible.
•  Stay up to date with ATO rulings and legislative intent
• Avoid the short-term wins that come with long-term risks

The bottom line

If your strategies work because of the law, that’s tax planning. If they only work because of a loophole, that’s tax avoidance – and the ATO is watching. Make sure your clients understand the distinction and always choose the ethical, sustainable path.