Planning for Income Tax

The amount of Income Tax a person or entity pays is a product of three main variables, which are:

1.

The amount of Gross Income derived.

2.

The amount of Tax Deductions that can be deducted off the income.

3.

The amount of Tax Offsets or credits that can be applied against the tax payable from the above.

Therefore to reduce the amount of Income Tax, the following would be your objectives:

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  1. Reduce the level of income you earn during a year e.g. hold interest bearing accounts in the name of the spouse who is on the lowest tax rate.
  2. Maximise the level of deductions e.g. preparing a log book on a vehicle may provide a higher level of motor vehicle deductions.
  3. Maximise the value of offsets or credits that are available to reduce your income tax e.g. investing in shares will provide imputation credits that reduce the amount of tax payable.

Strategies associated with all of the above are dependent on your personal circumstances, hence it is difficult to summarise those strategies that an individual may be able to utilise. It is therefore important for there to be an open line of communication between a client and their accountant, so that all appropriate strategies can be put in place and this can happen with enough time to enable the strategy to take effect for the year.

At Bentleys we encourage communication of this nature so that we can help you minimise your tax to the fullest extent possible. We note however that sometimes there are tradeoffs with a strategy to minimise tax, for example a tax friendly investment may expose you to additional risk. It may well be that you are prepared to pay an additional amount of tax rather than take the extra risk.