02 – Dover’s approach to tax

Introduction: two purposes

This e-book has two purposes. Its first purpose is to identify and explain opportunities for financial planners to improve their own tax position. We look at:

  1. practice structures to minimise income tax and capital gains tax[1] (CGT)
  2. investment structures to minimise income tax and capital gains tax (CGT)
  3. the (many) tax concessions connected to superannuation
  4. tax efficient debt management
  5. tax efficient investments, such as homes, businesses and business premises and
  6. common deductions.

If this manual helps you save tax we have done our job.

This e-book’s second purpose is to provide a checklist of things for you to consider when you sit down with your client. It’s critical that you are aware of common tax memes and themes, and that this awareness manifests in your statements of advice.

The FOFA reforms removed commissions on investment products. The 2015 LIF reforms reduce commissions on insurance products and the 2018 LIF reforms will probably remove the remaining commissions on insurance products.

Whether you like it or not the financial planning profession is being moved to a strict fee for service environment. Its what the institutions and ASIC want. There is nothing you can do about it, except prepare. Including tax efficient advice in your client services creates a competitive advantage over your competitors and improves the after tax cost: benefit ratio of your advice. It creates client appreciation. When clients appreciate you they stay with you, adding value to your practice and improving your bottom line.

Getting the tax right adds significantly to your clients’ after tax investment returns. Getting the income tax right can add 2 to 3% or more extra return each year. Getting the CGT right can add 25% or more to the overall return over the life of the investment.

You have to get the tax right to satisfy your duty to provide advice that is in your client’s best interests and is appropriate to your client.

You are in breach of the Corporations Act and your common law duty of care if you fail to get the tax right.

So you have to always be tax aware and alert to the problems and opportunities that tax creates.

ASIC’s approach to tax efficient investments

You can read about ASIC’s approach to tax efficient investments here: Choose your investments and make your money work for you.

[1] There is, of course, no such thing as CGT. There is only income tax, and certain capital gains are deemed to be assessable income under the tax law. We will ignore this technical point and adopt the convention of using “CGT” to refer to the inclusion of net capital gain in a taxpayer’s taxable income computation.

The Dover Group