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Poor tax planning assists Government

Millions of Australians are giving away money to someone who doesn't need it and really wouldn't appreciate the wonderful gesture. The ingrate in question is the federal Treasurer Peter Costello.
To be fair, and generally I don't practice niceties to politicians, particularly treasurers, Pete's 'crime' is really only a case of him being an accessory after the fact. In most cases, we are both the victim and the criminal.
The sources of the crime is procrastination, lack of knowledge and/or simply a lack of energy to go looking for tax help to ensure we pay the lowest possible tax. The late Kerry Packer once pondered why anyone would willingly pay more tax than they were legally bound to? And it remains a good question.
I recently asked a Sydney audience to put their hand up if they pay tax and all hands went up. (I suggested if they didn't, they might like to lie to avoid being talked about!)
I then asked then to keep their hand up if they liked paying the tax they were paying. All hands went down.
Finally, I asked who had sought out a tax expert who actually had thought through their very special circumstances. The hands told me about 10 per cent.
Having asking these questions to about 20 different audiences, the result usually comes in at about that number, which means 90 per cent of taxpayers are undoubtedly paying too much tax.
And while I believe there are many strategies that can easily reduce your tax bill, be wary of those tax suggestions that seem too good to be true.
Recently, something called a hybrid trust has been put forward by some accountants, which permits, say a high tax husband to borrow to buy an investment property which is held by the hybrid trust.
The trick is that the wife, who is possibly a non-working partner is also a member of the trust and is allocated the income from the investment property.
Think about the implications. The high-tax partner gets a big tax deduction and the low-tax partner receives income taxed at a low rate. Also there possibly is more asset protection from being sued because the property is owned by the trust.
However, Deloitte tax partner, Craig Holland, warned he thinks that this is a "scheme" which the tax office has not taken a close look at, yet.
If it fails its tough tests, those who are using this trust could be in for a rude shock of having to pay back the tax deductions along with a hefty penalty.

The tip is simple - look for tax breaks but don't break the law. 

Published on: Sunday, March 25, 2007

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