Why is it that those clients who hate paying tax, and who go to great lengths to avoid paying tax, rarely get richer? Often, they are good operators in their own business so that is not the problem. I once had a client who, for the first time in his life, received a bill from the ATO for $600. He asked me to lodge an objection.
I said “It’s complex. I would have to charge you $1200 so you are better off just paying the $600.”
He said, “I am happy to pay you $1200 as long as I don’t have to pay the Tax Office $600.”
That is how extreme it can get. (Actually, I declined and he went somewhere else, so I never knew the end of the story).
After observing this phenomenon for forty years, I reckon it is because of the “yellow car syndrome”. If I say to you “yellow car” I would almost guarantee that you will see yellow cars everywhere for the next day or so. It will seem like the number of yellow cars has suddenly and magically increased. It can get quite annoying because trying to forget “yellow cars” has the effect of making you remember them more.
You see what is in your mind.
For a few people, what is predominantly in their mind is “I do not want to pay tax”. When people with this attitude are making business decisions, the options which will result in not paying tax are the options that leap out at them. Not surprisingly, these are also the options which are not very profitable. I think there is a little bit of this in all of us. Accountants are constantly asked questions such as “How much can I sell my car for without paying tax”. The advice, of course, is “Sell it for as much as you can get”. Accountants are forever saying “Just make the best decision for your business and we will work out the best tax strategy afterwards”.
If you make a big profit, the maximum the Australian Taxation Office can tax you is 47% so you are guaranteed to keep at least 53% after tax. It doesn’t make any financial sense to forego a dollar to save 47 cents (or even less).
The best way to overcome the tax cringe is to treat tax as just another expense. When you are planning, budgeting and forecasting, make sure your bottom line is the after-tax profit. That way, you can do all your what-if scenarios and see instantly which strategy is likely to result in the most money in the bank. Put tax in its place and get richer, Don’t thank me, engage me.
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