Taxation Services
The idea of tax planning is simply to match the working capital that is required by you as an individual or you as an enterprise with the tax liability that results from your particular endeavor. This has to be done in the context of an economic policy that is continuously shifting to meet the economic needs of a country.
For example, the idea is that when a business starts the tax liability should remain small. The business might create refunds of tax or tax credits. As the business or the investment matures and becomes profitable, the absolute amount of tax paid should rise. The tax that is paid should be matched against the superior earnings of the investment or the business.
This occurs in an environment in which the needs of the client are fully protected. In this sense we need to determine what, if any, longer term risks exist for the client and to make sure the client understands these risks.
In one of our newsletters, it was noted that very often the best tax strategy results in no refund of tax. Generally a tax refund means that you simply paid too much tax and the government has received your money for a year, without any interest or return to you. Your investment or your business could have employed that capital to earn more revenue or generate more opportunities in new markets.
Large tax debts can result in problems managing working capital and can, in some severe cases, lead to insolvency or even bankruptcy. Therefore it is with great care that we examine and put forward a given strategy. It is important to understand the 'audit footprint' of any tax strategy. The problem is not usually that the strategy or plan is invalid, it is the time taken by the audit process. When your tax returns are being audited or reviewed, you are no longer focused on your investment or your business. Your eye is not on the ball and this is the real cost.
The view taken by any government agency will usually involve the payment of tax whereas the view taken by the client will usually center on the nonpayment of tax or the generation of a refund. This happens in the legal context of reverse onus. This concept is expanded upon in 'Tax Tips'. Essentially it means that the government agency is entitled to make whatever assumptions it cares to and you, (the taxpayer with all of the data), has to demolish the assumptions made.
A central issue is that many times, the taxpayer has no data. Sales taxes usually require data in the form of receipts and the connection of these receipts to the business activity or investment. The approach to income tax differs between countries. Some jurisdictions require receipts and a connection to the revenue generating activity. Some tax authorities will accept estimates based on third party, objective data. The situation is improved if the taxpayer readily understands the data he or she should keep and how that data is best organized.
We should also realize that schemes abound in the realm of taxation. Just like any investment strategy, any scheme that promises to generate a tax refund in excess of the actual cash refunded should be immediately suspect. In the investment world we learn quickly that risk and return are handmaidens. High return usually means high risk and so it is in the tax world.
For example, great care should be taken when investing in so-called offshore tax havens, it should be remembered that both in the United States and Canada individuals are taxed on their worldwide income. There is no such thing as a tax strategy that is risk-free. We should be alert for various tax schemes that are actually in violation of the various taxation codes.
The good news is that most of these schemes are well known and can be disposed of with a single phone call to our office. When you remember that phone calls are not billed by our office, this becomes a very good deal indeed.
