“You must pay taxes.
But there’s no law that says you gotta leave a tip.”
Morgan Stanley advertisement
Tax Planning is essential so don’t let your money be washed away
Tax planning is essential if you wish to optimise your tax savings. Paying tax is inevitable but you can arrange your financial affairs in such a way that is remains legal while minimising your tax liability.
There are many strategies to achieve tax minimisation when done correctly:
Superannuation Salary Sacrifice
You can request your employer to reduce the after-tax income paid to you and instead to increase amount paid to your superannuation. If your personal tax is greater that the maximum 15% tax rate payable by the super fund, you will reduce the overall tax paid on the amount of money paid to your superannuation. Consequently you will reduce your income tax.
Low-income earners should take advantage of the government co-contribution. By contributing $1,000 you could be eligible for $500 co-contribution. That’s easy money.
50% CGT discount
If you need to sell down some assets, first sell those owned for 12 months or longer. This way you are eligible to claim 50% CGT discount on capital gain of the asset sold. Therefore you will have more money left in your pocket.
Invest into Australian Shares portfolio
Consider a portfolio of Australian Shares that provide fully franked dividends. Consequently you would create a very tax effective form of additional income.
Borrow to invest
If buying an investment property or a share portfolio or any other income producing asset, your loan interest could become tax deductible. This is a fantastic tax saving strategy, but don’ forget borrowing risks.
Pre-pay interest on investment loans
Confirm with your accountant if this applies to your investment loan, but in general any interest pre-paid for the upcoming financial year could be tax deductible in the year the repayment has been made . Check your budget though if you can afford to prepay the full year interest.
Commence an Income Protection Policy
Policy premium is tax deductible for every tax payer (please refer to the Risk Management & Insurance Planning page). This not only achieves family security but also tax savings in one great strategy.
Start a Private Health Insurance
If your income is greater than $90,000 for singles and $180,000 for families, make sure that you have a Private Health Insurance Policy in place. Otherwise you will have to pay Medicare Surcharge. This improves family protection and security while reducing money wastage.
Providing education is job related all expenses could be tax-deductible (confirm with your accountant). Implementing this strategy achieves self-improvement and employment opportunities.
Issues to consider for tax planning:
- Are superannuation savings the best option for you now?
- What type of super contributions are most beneficial for you long-term?
- Is borrowing to invest an appropriate option for you?
- What type of borrowing is the most suitable?
- Do you feel comfortable with the borrowing risk?
- Do you understand your risk profile?
- Do you have sufficient time, knowledge and inclination to look after an investment portfolio yourself?
- Is your personal insurance in place so you can proceed to the investment planning with peace of mind?
- If you own an investment portfolio, is it sufficiently diversified and provide you with the best tax outcome?
Those are only few examples of strategies available and issues discussed prior to preparing an advice for you. I would love to assist you in improving the way you utilise your money and in building assets to reach your future goals.