You may have heard of the term ‘Tax Planning’– but do you know what it is or how it can help?
Essentially, Tax Planning is taking control of your money by making intelligent decisions when it’s necessary.
Being proactive with your tax planning at the beginning of the financial year (1 July ) rather than being reactive with your tax liabilities after the end of the financial year (30 June) will save you money.
Kerry Packer once said, ‘The government doesn’t spend my money too wisely, therefore, I am not paying a cent more tax than absolutely necessary.’
You would be amazed at what stands in between your tax liability and the tax you are “absolutely necessary to pay” if you have done your tax planning properly.
Here are three examples of concessions considered in tax planning that can help you increase your tax return:
- You will be eligible for a capital gains tax discount on the capital gains made on the sale of an asset if you hold it for more than 12 months. This is a straight 50% of the gains made. The assets could range from properties, shares, cryptocurrencies, and vehicles to many others.
- A superannuation fund in accumulation mode will have a tax rate of 15% on income and 10% on capital gains, whereas it would be tax-free in pension mode. This is where strategies such as salary sacrificing come into place. Getting into a salary-sacrificing arrangement with your employer will be effective in a situation where your taxable income is close to an income tax bracket. If properly planned this will bring your taxable income down and you will end up paying less taxes. In addition, your income will be taxed at a lower rate in your superannuation fund, and it may also help you to reach your retirement savings goal sooner.
- The Capital gains obtained on the sale of a business can be made tax-free by rolling it over into superannuation (subject to certain rules).
These are only a few concessions and strategies that you can take advantage of. Professional advice and getting your accountants involved in your tax and financial planning at the very early stages will be more beneficial than leaving it till the last moment.
Be proactive, plan beforehand, get advice and amend as necessary.
Tharindu Werake, Accountant