Tax Planning. It’s a real buzz phrase for accountants and clients alike. Afterall, who wants to make extra donations to the Australian Taxation Office (ATO) if we don’t have to?
With the start of the new calendar year and the usual annual hype about New Year Resolutions we thought we’d take a look at what is tax planning and when you should be doing it.
Tax planning can mean different things to different people. It includes:
- Planning to minimise tax for the current year or period
- Understanding what is going to payable and when
- It can be part of retirement planning
- Stability of managing finances
- Minimising the risk of audit activity
While we can all understand the value and importance of tax planning when is the right time of year to do it? Over the years I’ve spoken to plenty of my fellow professionals on this topic and the answers can be quite varied.
Some will say they start looking at tax planning for clients in March/April. Others say when clients ask or when something comes up which is out of the ordinary which will require a change from the status quo.
Tax planning is an ongoing part of managing client’s affairs all year round and not just focused on the current year and will depend on the individual client’s goals.
For some, tax planning means paying the least amount possible now in the understanding there will be extra payable later so long as they know roughly how much it will be and when. Some of our clients state their desire to keep as much in their home loan offset account for as long as possible to reduce the interest paid on their home loan.
For others, it means paying everything they need to now so that nothing is payable later or perhaps even a small refund is due. Some clients have concerns they may spend funds which should be put aside for taxes and therefore, prefer to get it paid ASAP.
Prudent tax planning can even involve paying more than you need to now, in the knowledge of paying less later. This could involve trying to bring forward income or delay expenses because income tax rates are scheduled to increase.
Of course, if tax rates are scheduled to reduce, then the direct opposite can lock in permanent savings.
At Clift Pearce Accounting, we feel tax planning isn’t something to be done or started at certain time/s of the year. Tax planning should be part of an accountant’s thought processes every time we are working on your affairs to ensure not only that you pay the least amount possible but also that your goals/wants/needs are met.
