Tax isn’t necessarily a bad thing. If you’re paying tax, it means that you are making money (income or capital gains). But of course, there’s no need to pay any more than you legally have to. I discuss our common-sense approach to saving tax below.
Minimising risk is often more important than saving tax
It is not worth it to bend or break the law to save a few hundred dollars in tax. For example, if you get audited and you have some dodgy deductions, it will encourage the ATO to look harder. The last thing you want is to attract the ATO’s attention.
My approach has always been to stick within the black letter of the law. Bending the law is rarely worth it. However, if there are entirely legitimate ways to minimise tax liabilities, then it would be silly to not explore them.
Remember, when you lodge a tax return, the taxpayer takes all the risk. If you get audited, you will be liable for the interest and penalties, not your accountant.
Often, tax can only be delayed, not avoided
Of course, there are few things you can do to minimise tax. However, more aggressive tax minimising measures tend to delay tax rather than permanently reduce it. Often, implementing these strategies create cost (tax advice fees and documentation) and complexity. Even the best plans can be thwarted by the ATO issuing a tax ruling, practice statement or change in law to outlaw your plans. Sometimes, it’s better to keep things simple. Minimise tax as much as possible without creating too much cost and complexity.
Minimise tax whilst you’re working (pre-retirement)
I list some of the common strategies we use to help clients minimise taxation liabilities whilst they are working i.e. generating personal exertion income.
Personal exertion income earners have few avenues to minimise tax
If you are a PAYG employee or earn
Personal Services Income, there are not many avenues available to you to minimise your income tax liability. Of course, you can use negative gearing and/or contribute into super (discussed below), but that’s about it. There are some additional tactics available to certain professionals such as barristers and medicos. If there are limited avenues available to you to minimise income tax, then its best to focus on minimising other tax liabilities such as tax on investment returns, land tax and so
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IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.
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