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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

Tax Strategy Database

The tax strategy database explains how 244 different tax strategies actually work (i.e. what the tax strategy is, how the strategy works, when to use the strategy, average tax deductions created by the strategy, and the strategy implementation process). 

The fact sheets provide 3 benefits:

  1. Clients are educated on the deductions and possible tax strategies that could apply to their circumstances. 
  2. Educated clients are more likely to be proactive and interested in tax planning and reducing their tax liabilities. This creates tax planning and implementation fees revenue opportunities for the accounting practice.
  3. Reduces the clients tax expense/liability (which makes clients more happy, satisfied, and loyal). 

The tax strategy database can be used in 4 ways:

  1. To quickly and easily answer client’s questions about specific deductions and tax saving opportunities. It’s as simple as emailing the client the relevant tax strategy. 
  2. As a reference tool for accountants to ensure they are up to date with every possible tax planning strategy.
  3. Relevant individual tax strategy fact sheets can be printed out and provided to taxpayers at their annual tax return preparation interview. For example, a sole trader business client could be provided with the ‘Companies’ fact sheet.
  4. As a marketing tool. For example, an accounting practice could print the SMSF Borrowings fact sheet poster and provide it to a real estate office. This would generate new clients for the practice.

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

201 Tax Saving Strategies

This book details 201 tax saving strategies and ideas, that if implemented will save you tax. It doesn’t matter whether you are an employee, investor, or business owner, there are tax strategies that apply to your circumstances.

Often taxpayers are unaware of all the tax saving strategies that are available. This is understandable as the Australian taxation system is extremely complicated and ever changing. Up-to-date information is the key to ensuring taxpayers are not paying more tax than necessary.

The focus of this book is to educate and enlighten taxpayers about the 201 selected tax saving strategies that are legally available.

Get your copy from Amazon Australia here.

 

201 tax savings strategies

Tax Planning Made Simple

Tax Planning Made Simple breaks the tax planning process down into six easy steps. Each step is detailed with instructions, guidance, examples, resources and templates so you can start providing expert tax planning services to your clients. It is really about giving you the tools, so you can add value to your clients and save them tax.

 

Tax Planning Made Simple

Get your copy of 'Tax Planning Made Simple' here, or sign up to our free trial to be sent a free copy of the book.