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I wish I had a dollar for every time that I’ve been asked the question, “What can I do to cut my taxes?”

It is easy for most tax accountants to be blasé about this question, to sometimes question the motives of clients raising the question. They may even treat it as a joke, and answer it in an offhand way.

On the other hand, clients may believe that tax accountants have the knowledge they seek and have to be coerced or goaded somehow into revealing the information to them. It may appear to our clients at times that tax accountants are working for the Tax Office (IRD). The term ‘tax compliance’ seems to support this view.

To be sure, tax accountants are trained in tax law, and have dual duties to their clients and the Tax Office, especially if they are registered as Tax Agents. The Tax Agents obligations to the Tax Office are discharged by ensuring that their clients lodge their tax returns according to their lodgement schedule with the Tax Office, and that the tax returns are prepared in compliance with the prevailing tax laws, tax rulings and interpretations.

The Tax Agent’s obligations to his/her clients is discharged by correctly applying tax laws, tax rulings and interpretations when they prepare their clients’ tax returns. Tax Agents should go further and advise their clients how to organise their tax affairs better and assist them to achieve better tax results…all within the prevailing tax laws.

That is the theory…the normative assessment, or what should be in other words. Just as there is market failure, there is also failure at times in what tax accountants do and fail to do. There are times when the tax accountant does not keep up-to-date with tax laws, so provides the wrong advice. This can be to the detriment of the client in not claiming what can be legally claimed or in claiming what cannot be legally claimed.

Accountability is a term that has been in vogue for at least the past decade. Tax accountants have to be accountable to their clients, just as we require every one else in a position of trust to be held accountable for their actions. So, clients do have a reasonable right to ask the question mentioned above…and to expect an answer.

What can be done?
Firstly, using different tax or business structures is one way to do it. By different structures we are referring to business on own account, partnerships, companies, trusts and joint ventures. There is usually a reason why one form is preferred to another. It may be commercial reality, such as people expect to see a business being conducted by a company.

It may be that the number of investors dictates it be a company, so that management can be installed to look after their interests and limit liability. It may be the type of product that dictates a joint venture, such as gold mining. And partnerships may be appropriate when it is a business to be worked by a husband and wife. Trusts may be preferred where asset protection is an issue.

Be that as it may, the Tax Office treats each entity differently. Sometimes, expenses can be claimed by a company that cannot be claimed by an individual or a partnership. And partnerships are not taxed, but the net income or loss is distributed to the partners. Companies and Trusts are taxed as separate taxpayers from their owners. This can provide opportunities for reducing tax, depending on marginal tax rates of the entity and the shareholders or beneficiaries, and also to reduce provisional tax.