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Tax Planning

What is Tax Planning?

Tax planning is the process used by individuals and businesses to structure their affairs to legally reduce their tax liability and make savings. This is achieved by using deductions, exemptions and structures to reduce taxable income.

According to the Australian Taxation Office "You have the right to arrange your financial affairs to keep your tax to a minimum – this is often referred to as tax planning, or tax-effective investing. Tax planning is legitimate when you do it within the letter and the spirit of the law".

Who Can Benefit From Tax Planning?

It's simple - All taxpayers can benefit from tax planning and the savings that are created. Our research shows that 95% of taxpayers are paying more tax than they are legally required too.

Approximately 50% of Australian taxpayers use legal tax planning strategies to minimise their tax with the most popular strategies being negative gearing of residential properties (2.1 million taxpayers), and salary sacrificing super contributions (4 million taxpayers).

See our blog post on Australia's most expensive legal tax breaks

See Money Smart - Contributing Extra to Super

Our Simple 4 Step Tax Planning Process

Step 1 – Determine the Most Appropriate Report Type for the Client

Choose from:

Step 2 – Enter Client Data

Step 3 – Select Tax Planning Strategies and Generate the Report

Step 4 – Discuss the Tax Savings Report with Your Client

Examples of Achievable Tax Savings

The table below is a guide to the savings that are possible if 10%, 25%, 50%, or 100% savings are achieved.

tax savingsKey points:

  • The tax savings report is the key to identifying and implementing the tax strategies to achieve the savings.
  • As taxpayers’ circumstances and tax laws change every year, a tax savings report should be prepared annually. Just like visiting the dentist for an annual check-up or having a car serviced regularly.
  • Each taxpayer’s circumstances will be unique, so the tax savings will vary from taxpayer to taxpayer.

Size of the Australian Tax Planning Market

For the year ended 30th June 2017 the 32,187 Australian practices comprised of 41,532 registered tax agents (RTA) generated $301 million of revenue from tax planning. In addition, the 21,826 tax (financial) advisers registered with the Tax Practitioners Board at 30th June 2017 would have generated additional tax planning revenue (although no figures are available). There are big variations amongst individual practices.

Revenue 2016 2017

Why Provide Tax Planning Services

Clients demand it

The majority of taxpayers want to reduce their tax liability and expect their accountant to save them tax. High income earners will change accountants if they don’t think their current accountant is reducing their tax liability sufficiently.

All taxpayers have the right to legally minimise their taxes

TaxFitness believes no taxpayer should pay more tax than they are legally required to, due to lack of proactive servicing on the part of their accountant or advisor.

Can be Highly Profitable

Practices should be targeting tax planning revenue of 10-20% of total practice revenue.

The ROI calculation for a practice with $500,000 revenue would be 118%

Return on Investment

Gain New Clients

TaxFitness recommends marketing a free express tax savings report to potential clients. This allows the practice to differentiate itself and provide value to the potential clients.

Tax Planning Software

To date, Australia has lagged behind the US in the adoption and use of tax planning software. As a result, tax planning in Australia has generally been provided manually, on an adhoc basis, to only a few select clients (under 5% of taxpayers). 

Over the last twenty years, every task, function and service in the average accounting practice has changed dramatically. The personal computer, and associated software, has brought enormous efficiencies in the preparation of financial statements, budgeting, and tax return preparation. Today, no accountants perform these tasks manually.  

Tax planning has also greatly benefited from computerisation. Tax planning software has now taken an ad hoc, manual, time consuming process to a new level of efficiency and effectiveness. In the US tax planning software has been available for over 15 years with the main suppliers being:

The Future of Tax Planning

Trying to predict the future is clearly an exercise in futility. As Niels Bohr said, ‘Prediction is very difficult, especially about the future.’ Bohr (1885-1962) was no fool and received a Nobel Prize for Physics in 1922 for contributing to the modern understanding of atomic structure and quantum mechanics.

Download the Future of Tax Planning