An Accounting Consultancy

STRATEGIC TAX PLANNING

By Sekou Seasay, (CTATM CFP®), Partner, SMSF madEasy

 

Strategic tax planning requires you to think ahead

before making the investment, and consider the

impact of tax on your investments and income now

and in the future.

 

Every dollar of tax paid is a dollar that could have been

 saved for your retirement. Strategic tax planning ensures

your taxes are prudent and legitimately minimized.

 

Tax planning strategies fall into one or more of the followings:

 

Income reduction strategies: this involves maximization of tax deductions, splitting taxable income or salary sacrificing to super.

Income swapping Strategies: involving the swap of taxable for tax-free income.

Maximizing offsets: involves obtaining tax offsets (credits) like imputation credits or new entrepreneurial tax offsets.

Arbitrage of tax entities: this involves moving income away from a high tax paying entity to a low tax paying entity.

Deferral of tax strategies: involving the deferral of tax or taking advantage of a more favorable tax rate.

Timing strategies: involves the sale of assets in years income is low

 

Strategic tax planning cannot be achieved by a last minute end-of-financial year dash to your accountant or following a whim with heavily promoted tax-driven investment schemes. Rather it is about foresight in planning your taxes, and being aware of opportunities that can allow you to reduce the impact of tax and create wealth on an ongoing basis.

 

When designing these strategies, one has to be aware of various integrity and anti-avoidance measures build into the income tax laws that are designed to stop manipulation of the tax system. Before you implement a tax plan, we suggest you speak to a specialist tax adviser.

 

 

 

Have you bought a pie recently? Would you have bought it

if you knew it was void of meat, vegetables or chicken? A pie is good because of what is buried within the pie, so is your tax plan. Unless your tax plan adds to current or expected wealth, it is worth nothing. Having helped many clients with varying levels of tax issues and mistakes SMSF madEasy Tax Services have developed the three cardinal principles of a great tax plan. Briefly put, your tax plan must be PIE!

 

The principles are listed below

 

Principle 1 –The Pre-emptivity Principle (P)

This principle states that a tax strategy must be pre-emptive to succeed. To be pre- emptive, the following rules must be obeyed:

•    cash flow must be dealt with at pre tax levels and/or;

•    tax deductible expenses envisaged and planned before income is spent.

 

Principle 2: The Inflow Principle (I)

This principle states that to be valuable, a tax strategy must result in an increase either in actual net income and/or asset or expected income and/or assets.

 

Principle 3: The Economic Principle (E)

This principle states that to be valuable, a tax strategy must have a very strong probability of producing an immediate and/or expected economic benefit, ordinarily via an increase in net worth.

 

 

(a) The borrowing and the title of the property is held in the individuals' name and not in the name of the trustee of the holding trust. The SMSF funds part of the initial deposit and the ongoing loan repayments;

(b) The title of the property is held by the SMSF trustee not the trustee of the holding trust;

(c) The trustee of the holding trust is not in existence and the holding trust is not established at the time the contract to acquire the asset is signed;

(d) The SMSF trustee acquires a residential property from the SMSF member;

(e) The acquisition comprises two or more separate titles and there is no physical or legal impediment to the two titles being dealt with, assigned or transferred

separately; or

 

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