Yes it is legal to minimise your tax but some strategies are obviously not legal and fall into the categories of tax avoidance or tax evasion.
The Duke of Westminster principle, which is often cited in discussions of tax minimisation, states that taxpayers are entitled to arrange their affairs to minimise tax liability, provided they do so within the law.
# TAXtipNZ will provide tax minimisation tips based on current NZ Tax law. These will be general in nature and you should seek out professional advice for your own particular situation.
To kick things off it is very useful to categorise Tax savings as either Permanent tax savings or Deferred tax. A permanent tax savings means claiming a type of expense now and reducing the immediate tax bill will have no effect on future tax bills eg a claim for Home Office and storage. Deferred tax means we are claiming a type of expense now rather than in a future tax period so we are saving tax now but at some time in the future the tax will become payable. Deferred tax strategies help provide working capital and a dollar saved now is worth more than a dollar 2,3 or 5 years later. Some deferrals may last as long as you are continuing to trade.
A good example of deferred tax savings is claiming in the current year any Holiday pay paid out in the first 60 days after the year end.
You don’t want to miss out on Permanent tax savings and deferred tax assists cashflow.
With the end of the financial year for most of us only 2 months away we can take on board some tax planning initiatives. The next # TAXtipNZ with provide some tips and possibly dispel some myths that may no longer hold true about what to do at year end.
