Tax planning: care and caution always needed

Tax planning is a year-round function, not simply something that one should simply consider at year end. This is especially true during periods of economic downturn and associated business uncertainty. In some cases, planning for tax outcomes in the run up to 30 June will be too late anyway. However, 30 June does focus the minds of many taxpayers on the tax they pay and therefore ways to legally minimise it.

What is also clear is that tax planning must be tailored to specific circumstances and this will vary depending on your structure (that is, individual versus trust versus company). Such planning becomes somewhat more complicated when taxpayers have some, or all, of these different investment vehicles as part of their overall group (or economic) structure. This is particularly the case for SME groups.

Of course, any tax advice should be cognisant of the potential application of Pt IVA and any other anti-avoidance provisions. Also, the Tax Office has, over time, made a number of pronouncements of its views on certain tax avoidance/evasion matters and these should also be borne in mind.

The period leading up to 30 June can be an emotive time for many taxpayers seeking to minimise their tax bills. The sharemarket can also see increased activity by investors wanting to crystallise losses (so-called tax loss selling) to offset against capital gains made elsewhere. Extra care also needs to be taken with this strategy in view of the Tax Commissioner’s views on so-called “wash sales” ie effectively selling an asset pre-30 June to crystallise a loss, and then buying the same asset back again (usually at a lower price post 30 June) – see also para [1111] of this Bulletin.

Calm heads are often needed and the rush to implement a tax planning strategy at this time of year can be fraught with danger. Entering into a transaction simply to secure a tax benefit has obvious potential tax problems, not to mention the risk of miscalculating (or not calculating at all) the underlying commercial soundness of the venture. Tax deductions and benefits may appear very attractive when viewed in isolation, but the simple commerciality of an investment (be it in shares, property, a business, etc) must not be overlooked. In this regard, some recent corporate collapses have provided taxpayers with a “reality check” and emphasises the investment imperative over the potential availability of tax deductions.

This special issue of the Thomson Reuters Weekly Tax Bulletin seeks to outline a number of issues that could be relevant in a tax planning sense. It is not exhaustive, but highlights a number of issues that should be considered in light of a taxpayer’s specific circumstances.