Minimising tax

JUNE 2010

TAX minimisation is when a tax payer legitimately arranges their affairs to reduce the amount of tax they pay. It complies with both the letter and the spirit of the law. Tax planning is an essential part of wealth creation. Structuring salary, superannuation, investments and debt can create significant tax savings. With effective planning you can take control over the amount of tax you pay.

Tax planning can involve:
• Maximising your after tax  income
• Remuneration packaging  (salary packaging)
• Capital Gains Tax (CGT)  management gearing
• Utilising franked dividends
• Borrowing to invest
• Small business and capital  gains tax concessions.
• Transition to retirement  strategies

Examples include analysing different tax options aimed at the minimisation of tax liabilities in current and future tax periods, such as whether to file jointly or separately; the timing of a sale of an asset; ascertaining over how many years to withdraw retirement funds; when to receive income; when to pay expenses and estate planning.

A correct structure is vital to managing the level of tax you pay annually. The type of entity through which owners choose to operate their business will ultimately determine the tax rate that will be applied to calculate income tax liability. Some of the issues to consider when choosing the right business structure are:

• The ability to distribute the  income of the structure among a wide range of beneficiaries.
• The relevant marginal tax  rates of your primary  beneficiaries.
• The capital gains tax issues  relevant to the structure,  including issues relating to the disposal of assets by the structure and the disposal of interests in the structure.
• The applicable rate of tax  payable by the entities  involved in the structure.  Such as the company tax  rate currently at 30 per cent  with the prospect of  dropping to 28 per cent  (recommended by the Henry review).
• The payroll tax and  WorkCover liabilities associated with your chosen  structure.
• The application of specific  taxation rules such as the  alienation of personal  services income measures,  and the provisions of Division  7A of ITAA.
• The ability to access various  concessions available under the income tax legislation.
• Transition to retirement  strategies for those taxpayers that are eligible, can generate  greater after tax rates of  return by keeping assets in  the tax effective environment of superannuation, while still  allowing access to a regular income stream from public or self-managed funds.

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