Tax tips, tax, it expenses, startups, small business
Managing your financial affairs to minimise your tax is commonly known as tax planning or tax effective investing.

Taxpayers are legally allowed to minimise their taxation liabilities through tax planning as long as it is done within the spirit and letter of the law. Tax law is intricate and thus a fluent understanding of the law is required if you wish maximise your investment strategy with out breaching the law or by becoming involved in a tax avoidance scheme that could result in you receiving severe penalties.

Do your research
Before committing to a tax planning strategy it is a good idea to understand the fundamentals of what you are doing. The Australian Taxation Office (ATO) provides support and information to assist you when tax planning.

Seek professional advice
Seeking professional advice or direct assistance can be beneficial and save you time and money as well as assist you with managing difficult financial affairs. But it is important to be vigilant. If you are offered a tax investment structure; ensure the person or organisation offering you the advice holds a valid licence issued by the Australia Securities & Investment Commission (ASIC). A person offering financial advice requires one of the following:

  • An Australian financial services (AFS) licence holder
  • A director or employee of an AFS licence holder
  • An authorised representative of an AFS licence holder.

As a potential investor you must be given a Product Disclosure Statement (PDS). A PDS includes important details about your investment arrangement, including

  • Fees and commissions
  • The benefits and risks
  • Additional information that will assist you to make an informed decision.

Risks: What to look out for
It’s important you understand the risks and when a legitimate risk can turn it to a breach of the law. Here are a few key items to avoid when tax planning

  • Excessively large deductions or tax offsets when compared to investment income
  • Mixing private expenses with business expenses
  • Investing now, with no return until later years, if ever
  • Complex financing arrangements with no obvious commercial purpose
  • Creating a loan that may never need to be repaid, or
  • Claiming deductions that may never be paid for.

According to the Australian Tax Office, if a tax arrangement seems too good to be true it probably is.

Tax Payer Alerts
If your arrangement is considered high-risk the ATO will issue you a Taxpayer alert. A taxpayer alert is considered an early warning of a high-risk arrangement that may breach tax or super laws. Consequences include

  • Having your tax deductions disallowed
  • Your taxable income can be increased (meaning a higher tax assessment)
  • Having your tax credits refused
  • Charged interest on your outstanding tax
  • Penalties imposed
  • In serve cases, you can be prosecuted and exposed to criminal liability.

It is important to have an understanding of the risks and benefits of tax planning as it can be a fine line between legitimate tax planning strategies and arrangements which the law considers a tax avoidance scheme. How an arrangement is structured, the financing, documentation and advice offered could indicate a suspect scheme. If you have been approached by promoters’ spruiking a tax scheme make sure that all advice and documentation is transparent and has zero risk. Ensure there are no round robin financing, complex finance arrangements and non-recourse loans. And finally make sure the structure of the arrangement falls within ATO guidelines.