When is tax planning aggressive?

Australian tax laws are complex and can be hard to navigate. Without specialist assistance, you risk getting things wrong.

Effective tax planning is essential to help you to legally minimise your tax, helping you save money and plan for your future.

Australian tax laws contain a variety of rules intended to protect Government revenue. These need to be fully considered to produce an effective tax planning strategy not subject to successful challenge by the ATO as being ‘aggressive tax planning’.

The warning: ‘If it sounds too good to be true, then it probably is’ can be a good starting point, but it can be very hard for taxpayers to tell the difference between a compliant arrangement and what may be seen as being an ‘aggressive tax planning scheme’ by the ATO or the courts.

‘The good’, ‘The bad’ and ‘The ugly’ of tax planning

‘The good’

– Effective tax planning is called ‘tax minimisation’, within both the letter and the spirit of the tax laws, matching the economic substance of the arrangement with the tax or superannuation outcomes. Such arrangements need to comply with the ordinary provisions, as well as not unintentionally triggering taxation anti-avoidance rules.

‘The bad’

– This can be contrasted with ‘tax avoidance’ schemes, usually involving some artificial or contrived elements that generate differences between the economic substance and the tax or superannuation outcomes. Such schemes are argued to infringe either the ordinary provisions or taxation anti-avoidance rules. These potential schemes generate disputes between taxpayers and the ATO where specialist support from tax experts becomes vital, both to manage any primary liabilities and the risk of substantial penalties being imposed.

‘The ugly’

– The worst forms of tax planning range between ‘tax evasion’ (an allegedly blameworthy act or omission affecting tax or superannuation obligations) and ‘tax fraud’ (allegedly concealing the true nature of the transactions or the parties to dishonestly obtain a tax or superannuation benefit). Affected taxpayers may be subject to criminal sanctions, on top of tax or superannuation liabilities and the highest levels of penalties. This requires specialist support from tax experts to try to secure the best possible outcomes for the affected person in their particular circumstances.

Potential ‘Promoters’

This can be especially problematic if you get advice from someone who is selling a particular arrangement, as they may be ‘promoters’ of a tax scheme, more interested in their own profits than whether they may be putting you at risk.

Some warning signs are if the potential promoter is charging you for buying the scheme, large fees for its implementation or a percentage of the tax savings they say you will receive, rather than purely for providing you with advice about how the tax laws work.

Even legal opinions provided by a person trying to sell you an arrangement may not offer any protection as they may be ‘selling opinions’ provided in general terms without considering your specific circumstances.

This is where getting independent legal and accounting advice from tax experts can be the best way to ensure that you don’t end up buying into a ‘tax avoidance scheme’ or getting unintentionally involved in some form of ‘tax evasion’ or ‘tax fraud’.

What to do to manage these risks?

Contact the team at Waterhouse Lawyers – The tax experts, so that we can help you work out the best response in your particular circumstances. We provide initial consultations to talk through your issues, and can then give you more detailed written advice or represent you in dealing with the ATO or other agencies, depending on your needs.