Tax Effective Strategies
Clients will often carry different philosophies when the payment of tax is concerned. Whilst some see it as a duty, many others see it as a burden and are therefore very receptive to tax-minimisation strategies.
When financial strategies are developed, it is usual for a broad range of factors including taxation consequences to be considered. Common areas of advice have taxation implications as follows:
Superannuation is generally agreed to be a very tax-effective way of building retirement wealth.
Directing pre-tax salary to Superannuation or making Self-Employed Contributions will save taxation at your Marginal Tax Rate. This Tax saving will often be in excess of the Contribution Tax Rate (15%), creating an overall benefit to most tax-paying individuals.
Those individuals paying taxation on the returns and gains from their personal investments may also benefit from moving funds to Superannuation. Ongoing investment returns within Superannuation are taxed at a discounted tax rates to the fund.
The low taxation on investment returns could also provide an argument to still invest in Superannuation even when tax-deductible contributions are either unavailable or unsuitable.
From between age 55 and 60 (date of birth dependent), Superannuation funds can be transferred to Pension accounts. The taxation on such funds is even lighter than Superannuation and the vast majority of investors enjoy completely tax-free investment earnings and growth.
Pensions are commonly used by retirees to provide their retirement income, although investing in Pensions pre-retirement often carries taxation benefits, especially if Pension payments help fund additional tax-deductible Superannuation payments. The popular term for pre-retirement Pension planning is ‘Transition to Retirement’.
Investing in shares providing ‘franking credits’ on their dividends, boosts the overall return on equities for low tax-payers and Superannuation/Pension funds.
Using borrowing to purchase assets such as equities, property or managed funds provides an opportunity to structure lending to obtain ongoing tax-deductions.
Having tax-deductions greater than the income generated from the investments leads to ‘negative gearing’. With tax discounts available for some Capital Gains, growth orientated investments are usually favoured for this strategy.
With some insurance premiums (such as Income Protection) personally tax-deductible and other insurances only attracting taxation savings when held in Superannuation, reviewing what insurance you have and how it is owned often generates taxation savings.
Self Managed Superannuation Funds, Family Trusts and investing for other family members
In conjunction with your accountant, we can explore how your expected investment income would be treated under various ownerships.
Self Managed Superannuation funds enable some control over when Superannuation contribution taxation is paid and facilitate simple accounting alterations to switch investment holdings between Superannuation and Pension funds.
Trusts can direct benefits to different beneficiaries each year and some children’s investments can offer discounted taxation.
Exploring who or what structure can hold funds is therefore a key part to any financial plan.