Tax Planning Benefits For Businesses & Individuals

Tax Planning Benefits For Businesses & Individuals


A new calendar year makes the halfway point for the financial year, and before you know it, it will be tax time again. As the end of the financial year rapidly approaches, it’s important to think about your tax planning strategy.

For businesses, there are several tax benefits available that can help reduce your taxable income. For individuals, there are also a number of strategies you can use to lower your taxes. By taking advantage of a tax planning service such as that offered by Grow Advisory Group, you can save money and keep more of your hard-earned money in your pocket.

In this blog post, we’ll discuss some of the most common tax planning benefits for businesses and individuals and how you can take advantage of them. But before we do, let’s take a look at what tax planning is so you have a better understanding of the process.

What is Tax Planning?

Tax planning is a process to minimise the amount of tax that you have to pay for your income, wealth and assets. In simple words, it is a strategy or plan that helps you manage your tax liabilities successfully without any hassle. It involves using the available tax deductions and tax offsets in your favour.

Generally, businesses and individuals try to plan their financial transactions in such a way that it not only reduces the tax but also ensures they do not end up paying more than they need to.

There are two main goals that need to be met when it comes to tax planning. It should help the individual or the business to reduce their tax liability, and it should also be within the legal bounds of Australia’s tax system.

Tax planning also helps facilitate the process of corporate restructuring in ways in which various entities are used to achieve maximum benefits in terms of tax savings.

Types of Tax Planning

There are basically two types of tax planning. They are:

Tax avoidance: This form of tax planning aims to legally avoid or minimise the amount of tax that you have to pay. The emphasis should be on reducing tax liabilities without breaking any laws. For example, charitable donations can reduce your taxable income, but it may be considered tax avoidance if it goes over the limit set by the Australian Taxation Office (ATO).

Tax minimisation: This type of tax planning is based on the premise that you must pay at least some amount of tax but aims to reduce the taxes you have to pay as much as possible within Australia’s legal bounds. For instance, if you are working and earning $50,000 per year, withdraw $10,000 from your superannuation fund, and submit a request for tax exemption. This would be considered tax minimisation as it seeks to reduce your taxable income.

Both these types of tax planning work differently, and the ATO has different views on them as well. Tax avoidance is not looked upon favourably by the ATO, while tax minimisation is considered to be more acceptable.

However, while tax planning helps you save money, it should always be borne in mind that within certain limits. You should not make any transactions or take any decisions with the sole motive of reducing your taxes. This is because the ATO has highlighted time and again that this kind of behaviour can be considered tax avoidance, and it could have serious consequences.

What Are The Tax Planning Benefits for businesses?

There are several benefits for businesses that have a tax planning strategy. One of the key highlights is to reduce your tax liability and business costs.

Another important benefit is by structuring a business to reduce its tax burden, as per the Australian Taxation Office (ATO). The ATO encourages businesses to take advantage of any deductions available under the law. If a business operates their affairs completely legally, they are entitled to claim all deductions available.

There is a wide variety of tax deductions available for businesses. These include interest from money borrowed to purchase an asset, depreciation on plant and equipment used in the business, legal fees related to contracts or premises, professional membership fees that are directly related to your business, etc.

In addition, tax planning is a way of ensuring that your business is in the best possible position when it comes to making future decisions. This has been highlighted by many tax experts who have stressed how important it is for businesses to have a proper long term plan in place so as to reduce their taxes and remain commercially efficient.

A tax planning strategy helps businesses use capital at its best and requires that it should be spent where it is likely to do the most good for the company. There are several benefits of using capital effectively before taking into account the impact on tax.

Businesses can save money through tax planning and spend that money to improve the business. It gives businesses more flexibility and the ability to expand and grow. Businesses can be in a position where they do not have to worry about not being able to fund other parts of their operations.

What Are The Tax Planning Benefits for individuals?

Tax planning for individuals usually includes using these tax deductions that are readily available to you to reduce your taxable income. However, it is important that such expenses be legitimate and cannot just be used to reduce taxes.

Tax planning benefits individuals by lowering their income tax and maximising their refunds. It is important that you do not end up paying more taxes than necessary and tax planning ensures that this does not happen.

Tax planning also helps individuals make wise financial decisions and avoid unnecessary debts like credit card debts or loans. It gives the power to take real control of one’s financial situation.

Another way of reducing one’s tax liability is by making use of deductions available under Australian law. There are several deductions available for individuals under tax law. They are not just limited to what you earn, but also include the expenses associated with earning this money. Some of the most common tax benefits that individuals can enjoy are as follows:

  • Gifts: When you give away your property, the tax benefits of gifting is included in your annual taxable income.
  • Personal superannuation contributions: If you make personal contributions to your superannuation fund and claim a tax exemption for them, it can reduce your taxable income significantly. Also, any employer contribution made on your behalf can be claimed as a tax deduction.
  • Interest on borrowing: Even the interest paid on your borrowings is tax-deductible, and you can use it to reduce your taxable income. It could include the interest paid on money borrowed from another person or an institution. Sometimes, when someone uses the money for investments, they pay tax on the income earned. However, if that money is used to buy an asset such as a car or property, then the interest paid on that loan in the year it is bought will not be taxed in your hands. This reduces your taxable income and overall taxes payable.
  • The costs associated with earning your income: If you are a salaried person or an employee, then any expenses incurred by you in earning that income can be subtracted from your taxable income. This will reduce the tax payable on your earnings for the year.

While tax planning benefits individuals by reducing their income taxes, it could turn out to be disadvantageous in some cases. For instance, if an individual has significant deductions or investments that help reduce taxes for lower tax brackets and they move to a higher tax bracket, it can actually turn out to be costly for them. This is because the effective rate of tax that they pay will increase.

What Are The Tax Planning Benefits for Non-residents?

People who are non-resident of Australia but do some income from a business in Australia or even from a property they own can also claim deductions under tax law.

If you have not been present in the country for 183 days, you can receive a dividend from your business in Australia. However, if you have been in the country for more than 183 days, then the whole amount of tax should be paid on these dividends.

Suppose you are a non-resident and have a rental property owned in Australia where you yourself do not stay, but your family does. In that case, it is entirely legal to claim deductions against that property under Australian tax law. You can claim deductions against your interest on home loan and operating expenses, including maintenance of the property.

Conclusion

Tax planning is of great assistance to both businesses and individuals. There are different kinds of tax benefits available under Australian law that either can avail of them. With the help of tax planning, one can reduce their taxable income and pay minimal taxes each year. It can be a great way to plan for your future and ensure that you have enough funds available when required.

However, tax planning should be done within the legal bounds of the Australian tax system to keep oneself out of trouble.

To ensure you’re in the best possible position come tax time, get in touch with the team at Grow Advisory Group. Our qualified tax agents will guide you in the right direction to minimise your tax and get you the best tax result possible.

Call us today on 07 5599 5700, submit an online enquiry, or visit our Tax Planning page to discover more about our service and tax planning process.

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    Disclaimer: The information contained in this blog is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from an accountant and/or financial adviser.

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    The information provided on this website is for general education purposes only and is not intended to constitute specialist or personal advice. This website has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should consider the appropriateness of the advice to your own situation and needs before taking any action. It should not be relied upon for the purposes of entering into any legal or financial commitments. Specific investment advice should be obtained from a suitably qualified professional before adopting any investment strategy.