03 – The general idea

The general idea behind tax planning for financial planners is straightforward.

Income tax will be lower, after tax rates of return will be greater, and wealth will be maximized by using tax efficient practice structures, investment structures and superannuation strategies to:

  1. create and run CGT free businesses owned by tax efficient trusts
  2. own CGT free practice premises
  3. invest in CGT free homes
  4. maximise super contributions for the financial planner and related employees
  5. invest in tax efficient investments, such as CGT concessional franked shares and
  6. use tax efficient investment vehicles such as SMSFs, companies and trusts.

The position if, of course, the same for most of your clients

Remember, tax is a state of mind. You have to think about tax all the time. You must understand your tax profile. What is your tax rate? What sort of income do you derive? Are you paying too much tax? Are you paying too little tax? Can you use an SMSF or a trust to derive investment income? Can you use a trust or a company to run your practice?

Tax efficiency really pays off. For example, if you  set up your practice so an extra $100,000 of debt is tax deductible you might save $2,000 cash a year every year in perpetuity. If you move $10,000 of income into a tax free SMSF you might save an extra $4,000 cash a year every year in perpetuity.

So time spent improving your tax profile is time well spent.

The same logic applies to your clients. Improving your clients’ tax efficiency puts cash in their pockets and builds their trust in you as their adviser. The LIF reforms announced in late 2015 will cut up to 40% of your income from risk insurance work, so you need something to replace this income stream.

Tax strategies for your clients are one great way of doing this.

Further relevant reading

You can read further on tax efficient investing here: The Dover Way. Tax Efficient Investing.

You can read further on tax planning for financial planners here: The Dover Way. Tax Planning for Financial Planners.

The Dover Group