1. Capture All Your Deductions

There are certain tax deductions that are permitted for most employees in Australia. More information of these deductions can be found on the ATO website.

We recommend that you are familiar with these deductions and ensure that you and your tax agent are claiming these as part of your tax return. The hardest thing about this is keeping track of your receipts and deductions. For this reason we recommend using a household budget system that can track your spending and record your allowable tax deductions in real time and capture all your relevant data required to complete tax returns at the end of the financial year (we provide this type of facility to our clients).

2. Utilise Superannuation Where Appropriate

Superannuation is the best tax structure available in Australia, with a maximum tax rate of 15%.

Therefore where appropriate you should take advantage of the superannuation environment to build long term wealth. This comes with a proviso if you are 30 years of age, you will have to wait 30 years until you can access the funds in this structure.

On the other hand if you are 55 years of age, you should be looking to take full advantage of the superannuation environment and investigating the implementation of a transition to retirement strategy.

The key is that superannuation is by far the most tax effective structure for building wealth, therefore you should look to take full advantage of it.

3. Don’t Invest in Your Personal Name

It is quite common to see people making large investments in their personal names. This is rarely a sensible strategy particularly if you are already generating income, such as a salary, from another source. Australia uses a marginal tax rate system, which means the more you earn the more tax you pay.

Of the available structures that can be used for investment, companies will only ever pay a maximum of 27.5% in tax. If you are a high income earner it will usually be far more tax effective to utilise a trust structure that can advantage of the corporate tax rate.

4. Invest Tax Effectively

It goes without saying that the easiest way to pay less tax is to invest tax effectively.
What exactly is a tax effective investment?

Arguably the most tax effective source of income in Australia are from fully franked dividends. A fully franked dividend is a distribution from a company that has already paid 27.5% tax, therefore providing you with a tax credit. If your marginal tax rate if above 27.5%, you will pay top up tax for the difference, if however you tax rate is 27.5% or below, you will either pay no additional tax or your will receive a tax credit. Self funded retirees are well aware of the tax benefits of fully franked dividends.

The other big factor is to avoid investments that will realise significant capital gains. If you are actively trading investment assets and capital gains you realise that have been held for less than 12 months are taxed at your marginal tax rate. If however you are a longer term investor and hold your investments for over 12 months you will receive a 50% capital gains tax discount and this can save you a significant amount of tax in the long run.
Be aware that there are very few investment options in Australia that we would consider tax effective.

5. Use Good Debt not Bad Debt

The tax system in Australia is geared towards using debt to generate assessable income.
What does this mean?

Put simply you get a tax deduction for any costs that are incurred in order to generate an income. The clearest example of this is that the interest costs on a mortgage over an investment property are tax deductible, while the interest costs on your home mortgage are not.

Investment loans are classed as good debt, because they are tax deductible, while loans for personal assets such as homes, cars and personal expenses (credit cards) are not.

If you’d like to talk with us about tax planning just call 3245 1466 or email info@tbctax.com.au today or simply click here.