Chapter 01 – Introduction

When providing financial advice to clients, the relevant tax implications should be a central consideration in a financial planner’s advice.  Any advice on super, insurance, investments outside of super, cash flow and debt management, retirement planning, estate planning and Centrelink benefits, will have tax implications which need to be considered and advised on.

This requires the financial planner to have a solid understanding of the tax laws.

In addition, financial planners need to manage the tax implications of their own practice.

The purpose of this part of the Dover Way is twofold. Firstly, we aim to show financial planners what can be done to improve the income tax efficiencies of their own practices. At the same time, we aim also to show advisers what they can do to improve their client’s income tax efficiency.

Tax planning for financial planners involves:

  • selecting the correct legal form for the practice. This will usually be a trust based structure with a maximum amount of net income derived through a discretionary trust to be distributed to lower tax rate beneficiaries, potentially including investment companies;
  • minimising and even eliminating expensive non-deductible debt connected to home purchases and renovations, through the careful management of practice and investment cash flow;
  • deferring tax as far as possible, and using the enhanced cash flow for investment and for debt elimination strategies;
  • paying the maximum amount of super possible each year, having regard to age and marital status, using gearing if necessary;
  • using advanced super planning strategies to minimise tax payable on the super fund’s investment income;
  • ensuring maximum tax efficiency for two or more cars;
  • making sure all possible deductions are claimed, particularly deductions which have a private element and which do not involve extra cash payments;
  • investing in your home as a tax free investment;
  • investing in your office as a tax free investment;
  • investing via super wherever possible, using both concessional and non-concessional contributions, as a tax free or near tax free investment;
  • structuring debt so that it is connected to the practice and is deductible at the highest possible marginal tax rate; and
  • structuring investments so they are not owned by high tax rate persons and are owned by low or no tax persons, such as trusts, companies and self-managed super funds.

Commercial purposes

Put simply, Australia’s tax law prevents taxpayers from implementing any structure or strategy for the specific purpose of reducing tax. The tax benefit of any strategy must co-exist with some other commercial benefit that would make that strategy advisable even in the absence of a tax benefit.

Each structure or strategy we recommend is supported by a number of legitimate commercial purposes other than the reduction of a tax liability. These purposes include administrative efficiency, cost reduction and asset protection. For simplicity, ease of explanation and economy of space, these purposes are not explicitly referred to in each part of the Dover Way but they are implied throughout. Readers can request further explanation and background as to how these commercial purposes affect their circumstances by contacting Dover and requesting a specific explanation.

The Dover Group