Tax Planning
with
Alan Liang
Registered Tax Agent, CPA, B. Bus (Acc. & Mk.)
ACCOUNTING ● TAXATION ● BOOKKEEPING ● COMPANY FORMATION ● TRUST FORMATION ●
BUSINESS ADVISORY ● TAX PLANNING ● MANAGEMENT REPORTING ● SELF MANAGED SUPER FUND
AJML GROUP PTY LTD AND RELATED ENTITIES ◊ AJML TAX SERVICES PTY LTD ◊ AJML BUSINESS SERVICES PTY LTD
What does AJML offer?
We help small businesses and individuals with their:
Accounting
Taxation
Tax planning
Bookkeeping
Company formation
Trust formation
Self managed super funds
Management reporting
Business advisory
What is tax planning?
Tax planning is a generic term that embraces all
the ways in which taxpayers plan to reduce their
tax liabilities without engaging in tax evasion,
including using different structures.
What is tax liability?
The two main taxes
1. Income tax
 The term “income tax” is defined in s 3(1) of Income Tax Assessment
Act 1936.
 For example: tax from salary and wages
 For example: tax from ordinary business income
2. Capital gains tax (CGT)
 Under part 3-1 of ITAA97, a capital gain will arise where a CGT event
happens after 19 September 1985 to a CGT asset and the capital
amount that you receive from the CGT event exceeds the total costs
associated with that event.
 For example: profits on sale of shares
 For example: profit on sale of investment properties
The Income Tax Rates Table
Income
(From Jul 2007)
Income
(From Jul 2008)
Tax Rate (2008-09 budget)
$0 - $6,000
$0 - $6,000
Nil
$6,001 - $30,000
$6,001 - $34,000
Nil + 15% of excess over $6,000
$30,001 - $75,000
$34,001 - $80,000
$4,200 + 30% of excess over
$34,000
$75,001 - $150,000
$80,001 - $180,000
$18,000 + 40% of excess over
$80,000
$150,001 +
$180,001 +
$58,000 + 45% of excess over
$180,000
Plus Medicare levy is normally 1.5% of your taxable income, depending on your circumstances.
Company – flat rate 30% on net profit
What is tax evasion?
Tax evasion involves unlawfully escaping
liability for, or payment of, tax. It is when
someone has deliberately and dishonestly
evaded tax.
Examples :
 failing to declare assessable income.
 claiming deductions for expenses that were not incurred or are not legally
deductible.
 claiming input credits for goods that GST has not been paid on.
 failing to lodge tax returns in an attempt to avoid payment.
What are structures?
Business structures
Sole trader &
partnership
Trust
Company
Super Fund
Liability
Owner personally
liable
The Trustee
Company
The Trustee
Tax rates
Highest at 46.50%
Depends on
beneficiaries
30%
15%
Utilization of
losses
Subject to non
commercial loss
provisions
Against future Against future
income
income
Against future
income
Franking
credits
No
No
No
Yes
Why company?
 Pays flexible wages and dividends.
 Accumulates franking credits free of charge.
 Directors duty is to act in good faith of the company at all times.
 Liability is limited to the company.
 Risk is limited to the company.
 Shareholders are risk free.
 Flat 30% tax rate on net profit.
Why discretionary trust?
 It distributes income flexibly, earnings could be distributed to the
beneficiaries whom earns the least.
 Asset protection, the asset are held in trust by the trustee for the
beneficiaries.
 The trustee controls the asset but do not own the assets in trust.
 Legal relationship between the members – trust deed.
 Low in running cost.
Why tax planning?

It helps you legally reduce your tax without losing any money.
 It helps you reduce your tax liability without engaging in tax
evasion.
 Tax affects every working individual in Australia on your ability to
advance your wealth.
The effect of tax
Example: If you started with $2 and invested it at 100%
return a year, which means it doubles every year, in five
years you would have $32, in ten years you’d have $1,024
and in twenty years believe it or not you’d have
$1,048,576…!!! Over a million dollars. (Before tax)
100% per
year for 20
years
$1 million
$2.00
What is the difference if tax was payable?
Given the exact same circumstances of $2 invested at
100% return a year, if you were taxed at the current highest
rate of 46.5%, you would be left with only $6,872.10 after
the 20 year period!!! (After tax)
$2 compounded
at 100% over 20
years but taxed
at 46.5%
$6,872.10
$2.00
$2 Compounded at 100% after 20 years of growth
No Tax
Taxed
Blue column is no tax, red colum is taxed at 46.5%
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
10
11
12
13
14
15
Year
16
17
18
19
20
What can we do about tax?
Example 1 - our client benefited by effective tax planning with flexible structures,
the result was $14,000 tax saving per year!!!
Before AJML tax planning
After AJML tax planning
Taxpayer
Taxable income
Tax @ 30
Jun 07
Taxpayer
Taxable income
Tax @ 30
Jun 07
John Fung
$180K wage
$64K
John Fung
$180K wage
$64K
John Fung
$150K
investment
income
$50K
Fungshui
Family Trust
$(150K)
investment
income
distributed
NIL
Linda Fung
NIL
NIL
Linda Fung
$74333 @ 30%
$18K
Tim Fung
NIL
NIL
Tim Fung
$74333 @ 30%
$18K
Rachel Fung
NIL
NIL
Rachel Fung
$1334 minor
NIL
Total
$330K @
46.5%
$114K
$330K @
35.5%
$100K
Example 2 - our client benefited by tax effective investment and integrated strategies.
The result was $1575 tax saving, plus returns in investments!!!
Before
Difference
After
Kevin R
Ordinary full time employee
Kevin R
Salary: $50K
Same
Salary: $50K
Deductions: NIL
AJML advice Kevin to invest $35K into forestry
investment by borrowing 100% at a rate of 15%
Deductions: 5K
Taxable income: $50K
$35K X 15% = $5K interest fully deductible
Taxable income: $45K
Tax @ 07: $10350
Tax saving - $1500
Tax @ 07 $8850
Medicare levy: $750
Medicare levy saving - $75
Medicare levy: $675
Payable: $11100
Saving $1575 each year for clubbing!!
Payable: $9525
Example 3 - our client benefited by restructure from sole trader to company,
The result was $19,000 tax saving per year!!!
Before
Difference
After
Wayne S –
Sole Trader
Liability - limited to company
Franking credits – free
Wayne S Pty Ltd
income: $168K
Same
income: $168K
Deductions: $2K
Wage paid to Wayne - $70K
Super paid to Wayne - $50K
Deductions: $122K
Taxable income: $166K
2007 Tax @ 45%: $54K
Wayne - $70K
Company - $48K
Super Fund - $50K
Company @ 30%
Wayne’s wage @ 30%
Super Fund @ 15%
Taxable income : $166K
2007 Tax @ 25%: $38K
Medicare levy: $2K
Surcharge: $1.5K
Total: $3.5K
Medicare levy saving - $1K
Private hospital cover – surcharge avoided
Medicare levy: $1K
Surcharge: NIL
Payable: $58K
Saving $19K per year for holidays around the world!!
Payable: $39K
THE AJML Group
There are plenty more ways you could legally reduce your
tax without losing any money!
The first hour of consultation is free of charge, if you wish
to discuss:
Please get a pen and note my details
The AJML Group
admin@ajml.com.au
Tel: (02) 8812 7968
Fax: (02) 8456 5913
Suite 2, 295 Anzac Parade
KINGSFORD NSW 2032
PO Box 1098
MERRYLANDS NSW 2160
www.ajml.com.au