Smart Tax Planning for High-Net-Worth Individuals and Families in Australia

Tax can often be an afterthought for managing your financial affairs, but with some ahead-of-time thinking, you can make it a more efficient and simpler component of your overall plan. 

We believe smart tax planning isn't about minimising tax at all costs. It's about optimising your overall tax position to preserve and grow your wealth across every stage of life — and it comes down to three phases: before, during, and after.

Here's what to consider at each stage.

1. Before the activity: Lay the Right Foundation

Tax rules vary depending on the entity type involved. Individual vs. Trust vs. Company vs. Superannuation vs. Others should all be considered when working through a new arrangement.

When dealing with family matters, ownership and control of these entities is important to understand. You should also consider what your objective is for the activity.

Is it to maximise after-tax cash flow during the life of the activity?

Or do you want to minimise any hurdles at the beginning?

Or make sure the end result is as strong as possible?

Different goals will help the decision process for the entity chosen. If possible, you should start with the end in mind.

Forward looking thinking is key.

This means understanding what your ‘exit strategy’ is before you begin. It may not be detailed to the nth degree, but there should be a general plan for what happens when it’s time to stop.

A classic example is entering into an interest-only loan arrangement for tax deductibility purposes but not stopping to consider how the loan will eventually be paid off.

2. During the activity: Stay Organised and Flexible

Now that you understand where you’re starting from, where you’re headed and why, and have chosen the tax structure to operate inside, it’s time to implement. 

• Automate where possible 

Automation should be maximised. It is human nature to take the easiest route, to forget things and to overly discount the benefits to future you.  

So as much as possible, delegate record keeping, repetitive tasks and periodic reporting to other professionals or technology. There will be an administrative effort hurdle to overcome in the beginning, but this effort in the beginning will pay dividends later on. 

• Stay Flexible 

  
  

Optimising tax efficiency requires any ongoing plan to be flexible. Two things are often said to be certain in life; death and taxes, but I’d also extend that to say “change”.  

Personal circumstances will change; people will age (dropping in and out of different eligibility categories), rules will be shifted, and sometimes the lighthouse goal you’d been working towards becomes different.

So, as an individual or as a family, frequent reviews with your adviser will help make small adjustments along the way that will help to keep you on track. 

3. Exiting the activity: When Reality Meets the Plan

You had thought about your exit strategy ahead of time (remember?), so this part shouldn’t cause any major concerns.

Until in reality, it does.

Perhaps now you’re understanding what your adviser meant about ‘pay later’ costs and taxes. Or you thought you’d be in a different position to what you ended up in. Or deferred taxes in the past have become an actual cash flow requirement now.

Importantly, you should understand that even non-action is a decision in itself, and that although it’s perfectly fine to take a considered approach to what you end up doing, ignoring it is generally never the right thing to do.

Typical exiting activities are:

• Retirement

• Sale of a property

• Winding up an estate

So what are some options for optimising tax-efficiency for individuals and families when things like this are occurring?

Retirement

Retirement generally means the cessation of income (via salary or similar). This can begin to reduce you’re the effectiveness of tax-effective activities such as ‘negative gearing’ properties, superannuation contributions or loans.

This means that timing is key.

Sale of a property

When selling a property, again, timing can be key for the understanding of tax implications. Tax discounts may be available, you should consider other taxable income sources and then also have a plan for where the proceeds are going.

Winding up an estate

The management of an inheritance, either as an executor and dealing with the administration or as the recipient dealing with the implications of the arrival of money, presents opportunities for tax effective treatment. Although lots of advantages can be obtained through planning before the entity becomes an estate (i.e. before the person has died), there are still ways to create some advantages afterwards. These can include the rolling-over of cost bases and the timing of the sale of a former primary residence.

Smart tax planning for families

Breaking down the tax journey of an activity helps to show that planning can be beneficial before, during and after. Although some tax is often inevitable, the optimisation of an overall tax liability for a family is often a goal.

Although we would not advocate that tax becomes the primary driver of decisions, it is an important consideration.

For more of the guidance you need to build your wealth, book a chat with our team.

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Absolute Wealth Advisers help high-net worth individuals and families in Australia who need direction and structure to optimise, grow and share their wealth.

This is not tax advice. The information contained in this article has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should seek advice before making any decision regarding any information, strategies or products mentioned, to consider whether that is appropriate to your own objectives, financial situation and needs.