Great Tax-pectations
July 11th, 2018
The cold mornings in Adelaide tell us we are well and truly into the new financial year. A great many people love July - a fresh 12 months lays ahead, and hopefully there are butterflies in your tummy as you eagerly await the fat tax refund heading your way from the ATO!
The kind of questions I commonly hear from clients at this time of year include “how do I get my income down this coming year so I don't pay tax”and “should I buy a property so I can negative gear and avoid paying tax?”
The Grandmotherly reminder first - if you're paying tax, it means you're fortunate enough to be earning or making some money (so even tax has a silver lining!)
From a planning perspective, reducing your tax isn't generally about spending more to get deductions, particularly when it means borrowing a lot of money to do so. Many people mistakenly believe that the tax benefits of paying higher rates of interest on investment loans than the interest or rent you receive will more than offset the extra interest charges. In many cases, this investment strategy ends up costing you far more than the tax you save. Any sound long-term investment and tax plans need to be more than a July to June snapshot each year and consider the bigger picture.
Our approach at Plansure is to sit with people and ask them about their life, needs and goals beyond 1 year, 3 years, 5 years and (hey, let’s go crazy) even into retirement. What does that look like for you – what would you love it to include? It’s a critical foundation piece, building an honest and deep understanding of someone’s long term life aspirations, that sets the foundation for building, implementing and governing a goal realisation strategy that incorporates tax planning, saving, spending, investing (and most critically, enjoying it all along the way!).
If you think business/self employed people are the only people that have opportunities to be creative with tax planning, let me set the record straight. As an employee, there are potentially lots of things you can do to minimise your tax. Some examples include:
Salary packaging a laptop. A tax minimising strategy available to many employees (my own staff can do this).
Putting a little bit extra into super. Depending on your income, an extra $20 or $40 per fortnight into super can reduce how much tax you pay as well as really boost your super savings for retirement (the miraculous power of compounding interest!)
Investing in managed funds or shares. Some of these types of investments have franking credits plus other benefits.
You could write an essay on the myriad tax reduction strategies available, but the best course of action is to sit down with an expert, talk about your unique situation, and work through the type of tax planning steps that will best fit your goals and life. Starting at the beginning of a new financial year gives you greater scope to plan better for you.
If you would like to know more about how some of these key ideas could apply to you, we’d love to help. Give the team at Plansure a call so you can come in for a coffee and chat!
Disclaimer:
This advice is general advice only and has been prepared without taking account of your objectives, financial situation or needs; and because of that you should, before acting on the advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs.
