"The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing." Jean Baptiste Colbert (1619-83)
If being plucked alive sends shivers down your spine, then better still, pay no taxes and keep your feathers on.
Peter Sibbald, author of newly-published Pay Zero Taxes estimates that if average Kiwis were to add up what they pay in PAYE, withholding taxes, company taxes, GST, import duties, council rates, ACC, travel taxes, petrol taxes, alcohol and gaming taxes and a myriad of other taxes, they would find that they were paying about 45 per cent of their income in taxes.
"If you're on $60,000 or more, then that figure rockets to over 65 per cent of your income." That means if you're a high earner, you're working from New Year's Day until August 24 each year for the government for free.
"There are no magic secrets unfortunately," says Sibbald. But if you follow his advice, the Christchurch-based accountant turned author promises that every taxpayer ranging from big business owners to beneficiaries can save some money.
Start a part-time business
One of Sibbald's key messages is that there are two sets of tax laws: one for employees and one for those in business. Employees have but two tax deductions: the cost of preparing a tax return and the cost of income protection.
"Simple, but sad," says Sibbald. You might need clothing, training and a car to do your job. But none of these are tax deductible for the ordinary employee.
If, however, you become self-employed - even part-time in the evenings and weekends - then you can claim a multitude of otherwise "personal expenses" such as a proportion of the cost of your mortgage, car expenses, household bills and so on.
You don't even have to make a profit. Losses can be against tax on your 9-5 salary or other income.
What's more, many of life's pleasures ranging from sports events you sponsor to meals out with your accountant, who just happens to be your next-door neighbour and best friend, become tax deductible. This can add up.
Part-time businesspeople can also register for GST and claim back the portion of GST on anything you buy for your business, which could range from rubbish sacks for your office to underarm deodorant if you're a personal trainer. Regardless of what type of losses your business makes you do need to pass the Inland Revenue Department's "business test", which means intending to make a profit, keeping accurate books and so on. What's more certain "suspicious activities" such as antique collecting with high levels of personal pleasure involved might incur the wrath of the IRD.
If you're going to set up a business, then a perusal of Sibbald's previous bestseller, Slash Your Taxes Now, is probably in order. The book is really a list of deductions that even some accountants haven't heard of - such as Sky TV subscriptions for self-employed journalists.
Heather Douglas, owner of the Homebizzbuzz website, points out that you don't have to have the business idea of the century to set up a small business. Many people choose to do network marketing, selling products such as Amway and Herbal Life, moonlight, or do gardening or lawn mowing.
What wealthy couples do and the rest of us seem to forget is to channel as much of the higher earner's income to the one on the lowest rate of tax. Conversely, losses can be offset against the higher earner's tax bill. Either way, you're left with more money in your pocket.
You can even employ members of the family and pay them wages. That can include children who carry out duties such as opening the mail or retrieving the Herald from the letterbox each morning as my three-year-old does.
Tax shields and shelters
Sibbald describes tax shields and shelters as "super-sized tax savers". They include limited liability companies, trusts and loss attributing qualifying companies which are often used by property investors.
But beware of lawyers and accountants who say everyone should have a family trust, says Sibbald. "This might be more believable if they could just get out of the habit of rubbing their hands together in anticipation and wearing a crooked smile as they say it.
"Make no mistake - trusts can be an extremely good thing," he says. "However, they can also be expensive to set up and maintain."
Auckland-based trusts expert Bill Patterson, of Patterson Hopkins Barristers and Solicitors, points out that trusts pay company tax, which is less than the marginal rate for high-earners. There are many more trust-based tax ruses that can be employed. If, says Patterson, you're a returning expat or immigrant there are some nifty tricks which allow you to transfer your assets into a trust without being hit by gift duty.
"It's a complex issue as their circumstances all differ and no one size fits all," says Patterson.
Investment income, like any other income is taxable. But capital gains on most run-of-the-mill investments aren't taxed, meaning a 10 per cent rise in the value of a stock, fund or property isn't taxable, but 10 per cent of income from the same investment is. There are some exceptions to this and that includes investments made in most other countries excluding a small number such as Australia, the US and UK, which are known as grey-list countries - although the Government announced in this year's Budget that the grey-list might be scrapped and a report on submissions about the proposed changes is expected by the end of this year. If the changes do go ahead, they're due to come into force on April Fool's Day, 2007.
Some investors even go further and attempt to make income losses on their investments while clocking up capital gains. In a rising market, this is can be a handsome winner and is one that is common with real-estate investors.
One thing that Sibbald's book doesn't focus on is the taxes individuals pay for goods and services they buy. The most obvious way to reduce these is to spend less in the first place.
Another strategy is to buy from abroad. Goods bought from websites in overseas countries should be free of GST, VAT or sales taxes, providing the value of each consignment is less than $200 to $250, depending on the item in question.By Diana Clement Email Diana