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Tax Planning Is Fine Within The Scope Of The Law, But What Happens If You Skirt It?

Tax is something that every Australian is legally required to pay. Unfortunately, there is a small percentage of people who will deliberately break the law to avoid paying tax or to claim refunds or payments that they are not entitled to. Doing this, however, puts the tax and superannuation systems at risk.

One of the ways that people may break the law surrounding tax (on purpose or inadvertently) is when they get involved in a tax minimisation scheme.

You do have the right to arrange your financial affairs to keep the tax you have to pay to a minimum. This is referred to as tax planning or tax-effective investing, which is something that we may be equipped to assist you with. It’s a legitimate measure to use if done within the intent of the law. Some taxpayers however may find themselves in situations where their tax affairs push the boundaries of the law

However, a tax minimisation scheme (also referred to as a tax avoidance scheme or arrangement) aims to exploit the tax and superannuation system.

They can range from mass-marketed arrangements advertised to the public, to boutique or specialised arrangements that are offered directly to experienced investors. Some are marketed to individuals and may exploit people’s social or environmental conscience, and generosity.

These schemes typically involve:

  • Reducing a participant’s taxable income
  • Increasing their deductions against their income
  • Increasing rebates
  • Avoiding tax and other obligations entirely

A tax avoidance scheme may include complex transactions or distort the way funds are used in order to avoid tax or other obligations. It may also structure arrangements to:

  • Incorrectly classify revenue as capital
  • Exploit concessional tax rates
  • Illegally release super funds early
  • Inappropriately move funds through several entities, such as a series or trusts, to avoid or minimise tax that would otherwise be payable.

Some of the more common tax avoidance arrangements that the Australian Taxation Office (ATO) are currently aware of include:

  • Retail sale of illicit alcohol
  • Mischaracterised arrangements and schemes connected with foreign investment into Australian entities
  • Accessing business profits through an interposed partnership with a private company partner
  • Accrual deductions and deferral or avoidance of withholding tax

If you are concerned that you may be involved in a tax avoidance scheme, you should consult with us, or speak directly with the ATO. This may entitle you to a reduction in penalties if you speak with them prior to their investigation.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier

David and Alison Parker

I have been consulting J L Noller and Co. (more specifically Jane) for six years and during this time I have found her to be professional, efficient and easy to discuss all accounting and taxation matters with. Her office team are all polite and friendly also.

David and Alison Parker

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Carl Gillmore

I have used Jane & the team for the last 6 years for all of my business & personal accounting needs. They have always been professional, easy to talk to & available when we have needed assistance.

Carl Gillmore

Carl Gillmore Landscape

John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier