23 Jun Why Some Accountants Don’t Give Tax Advice
Most people install a house alarm after they’ve been done over. Tax is the same. Most tax payers seek to reduce their tax when it’s too late, usually in the following financial year.
A few years ago, I received a call from a lady who was keen to start making plans for their retirement. She’d been needling her husband to do something for a while but to no avail.
When I met them, they were earning a combined income of circa, $300,000. Their house was paid off, the kids had left home and they had plenty of surplus cash. No mention was made of their tax although it was evident something could be done. So I just made a note to self and addressed it later.
In our second meeting, I outlined how we could create sufficient income for them to retire on and in the meantime, reduce their income tax while they were still working. The tax saving equated to just over $32,000 pa between the two of them and if invested in super at 6%, that would have given them an extra $421,000 in retirement, tax free. *
Naturally, I was very excited about meeting them for the second appoitment because of what we could do for them. Unfortunately, they didn’t feel the same way. She was shocked to learn how much tax they could have saved if they had of done something much sooner, and he simply didn’t believe my figures.
About a week later I followed up with a phone call just to see if they had any questions. In short, they decided not to go ahead. It turns out they had one hell of an argument after our last meeting and the husband refused to do anything at all. (Probably a get square with his wife for going behind his back and organising the appointment, some blokes are that sensitive!)
However, she was still confused (and angry) about why their accountant never said anything when it was obvious something could have been done.
The Reasons Why
Without speaking to her accountant, I couldn’t give her an exact answer about ‘why’ he never broached the subject of reducing their tax, however I shared this with her.
In very simple terms, accountants account for the past and financial planners plan for the future. It’s an obvious distinction but one that is rarely understood.
I pressed on and gave her five reasons why some accountants don’t give tax advice.
I. Qualifications – some accountants simply aren’t qualified to give advice, and quite frankly, would prefer to keep it that way. It’s akin to a builder being a plumber at the same time – just because they know what to do doesn’t mean they want to do it. There’s too much responsibility and too much to think about.
II. Increased risk – if an accountant gives advice, it immediately changes the risk profile of their business. I.e they carry an extra layer of responsibility, especially where investments and loans are involved, which many don’t want.
III. Statements of Advice – writing plans for clients is a very tedious, litigious, time consuming process and unless it’s delegated, it’s akin to getting root canal therapy. Tax returns are a walk in the park compared to writing a plan for someone.
IV. Implementing Advice – implementing advice recommendations requires a very efficient back-office which in turn automatically increases business overheads. Worse, a poorly run back-office can easily make mistakes leaving the business open to more liabilities. Another headache!
V. Insurance – accountants Professional Indemnity (insurance) premiums go up significantly and can make giving advice cost prohibitive. Alternatively, their insurer may restrict them from giving certain types of advice as well. This is very common.
If you are not getting the advice you think you need and your accountant cannot help, just ask for a referral if one hasn’t been offered. It’s no different to visiting your GP, you can still maintain your existing relationship and seek the help of a specialist. Just ask.
Have a great weekend!
* Calculations based on ten years of tax savings invested at 6% with all distributions reinvested at 6% as well.
Back paddock – do you remember this day fifty two weeks ago? Brexit! Remember how the whole world was going to fall apart? Well, it didn’t. It was so stupid I wrote a Moowsletter the morning after likening Brexit to Sesame Street…and that’s no disrespect to Ernie, Bert and Oscar either. I love those blokes!
Back yard – I know its a few days late, but I want to say a special Happy Birthday to Allan Lawson for Monday, June 19. This bloke is a champion of the highest order and one of the nicest guys I know. He does so much for other people without expecting anything in return. So if you’re walking past the True Religion cafe on Darling St Balmain (cnr Birchgrove Rd), stop and shout him a coffee. He’s there between 7-7.30am every morning, without fail. You can’t miss him at the moment because he’s got patches on his head after having some skin cancers removed and a graft taken off his leg.
And if you’re wondering why he’s at the cafe at that time each day it’s because he runs up Thames St, East Balmain (a 400m hill) six mornings a week with a few other crazies and then finishes at the True Religion cafe for coffee. Not bad for a bloke in his mid sixties!