Advisers should not sail too close to the wind when it comes to tax planning.
At least that is the opinion of Kenneths Group director John Day who says it is im-portant to not only stay within the letter of the law but also the law’s intentions.
Advisers should not sail too close to the wind when it comes to tax planning.
At least that is the opinion of Kenneths Group director John Day who says it is im-portant to not only stay within the letter of the law but also the law’s intentions.
Day says tax planning is a crucial part of private banking since you are dealing with high net worth clients.
“The question is not really should tax planning be a part of the private banking of-fer, but how can it be possibly ignored?” Day says.
“As Australian citizens, high net worth individuals live in an overly taxed and in-creasingly complex taxation environment. Every piece of advice provided by a pri-vate banker either impacts or is impacted upon by our taxation legislation.”
The role of private bankers, according to Day, is to minimise the tax liabilities for clients and provide strategies which protect the client’s wealth.
In order to do this well, Day says private bankers should set up simple structures with appropriate and extensive documentation.
“Complicated structures are less likely to meet commercial objectives such as effi-ciency, and are more costly to maintain. The Australian Taxation Office (ATO) ar-gues that the more complex a plan, the more mischief is involved,” Day says.
The structure should also take into account who will benefit and if tax advantages in the present will be outweighed by inconvenience or future problems.
As a result of this, private bankers should also look to the future and scenarios such as succession planning or unwinding a business or tax structure.
He also says documentation is essential in defending any plan and presenting a vi-able argument if the plan comes under intense tax office scrutiny.
Day says that as tax professionals, private bankers need to remember tax is a result of commercial activity and having sound business reasons for structuring a com-mercial activity in a certain way may deflect allegations of tax avoidance.
“It is too late for advisers to put together a supporting file when the ATO auditor calls. In some circumstances it may be necessary to include a reasonably arguable position paper and opinion from counsel,” Day says.
“Having a good tax management system will assist in the production of these pa-pers and this approach will help minimise any penalties in the event the ATO does not agree with a position taken by the taxpayer.”
