Blog

May 20

How would you like to legally reduce your tax by $500 or $1,000 or $5,000 or more?

Here's how to do it:

The Strategy behind Tax Planning

The tax you pay depends on your taxable income (all assessable income less allowable tax deductions), and the tax rates that apply to that income.

Therefore, your tax is reduced if you:

1. Reduce your income, or

2. Increase your tax deductions.

Seeing we all want to earn more, reducing your income isn't an option! But increasing your tax deductions definitely is. Below we have given you a link to 2 Tax Planning Flyers which both list out a number of items that could be claimed as tax deductions. Use these as a guide, but please CONTACT US if you have any questions or uncertainties about this.

To illustrate: If you need something in July that is classified as a tax deduction, it makes sense to bring this purchase forward and buy it in June. You then get the tax deduction this year, and not next year.

Warning: Don't fall into the trap of buying something simply to get the tax deduction for it. If your tax rate (including Medicare Levy) is say 34.5%, you would only get 34.5% of the purchase price back as a tax refund (or reduced tax payable) from a tax deductible item. You DON'T get 100% of the amount that you spend back as a tax refund (or reduced tax payable).

But if you do need an item for your business or your work and it is tax deductible, we recommend buying it BEFORE 30 June so that you get the tax deduction this year.

Your Tax Planning Strategy Checklists

Business Owners: our Tax Planning Flyer for Business Owners.

Tax Planning Strategies for Business Owners

Individuals: our Tax Planning Flyer for Individuals.

Tax Planning Strategies for Individuals

Help us to help YOU!

If you spend a little bit of time with us to review your financial situation and discuss your tax planning options, you could end up saving yourself thousands of dollars.

May 19

If you have a Family Trust (also known as a Discretionary Trust) YOU NEED TO READ THIS!

From the 2011/12 financial year, Trustees who distribute the income of a Trust through a resolution to beneficiaries must do so BEFORE the end of the financial year (June 30) for the resolution to be effective in determining who is to be assessed on the Trust's income.

If a Trustee fails to make a resolution to appoint the income of the Trust before the end of the financial year, the Trustee may be assessed by the ATO on the Trust income at the highest marginal tax rate of 49% rather than the intended beneficiary(s).

Before 2012, the ATO allowed a certain amount of discretion as to when a resolution could be prepared.

However, the ATO now takes the view that following the recent decision in Colonial First State Investments v FC of T 2011 ATC 20-235, trustees must now resolve to distribute the current year’s income on or before year end to ensure the beneficiary is presently entitled to trust income.

What You Need to Do

You need to provide us with a Profit & Loss Statement for each Family Trust that you have for the period 1 July 2014 to 31 March 2015. You also need to send us details of all income earned by all family members during the period 1 July 2014 to 31 March 2015, and your estimated income for the period 1 April 2015 to 30 June 2015, including any capital gains.

May 19

Debt optimisation (sometimes referred to as “Debt Recycling”) is a financial strategy which creates wealth over time and improves an individual’s debt structure. Achieved, in the majority of cases by:

Using all surplus income to reduce the home loan (non-tax deductible “bad debt”);

Creating or increasing investment debt (tax deductible “good debt”) by drawing against equity in the home; and

Using this borrowed money to build an investment portfolio.

It is a great strategy that can be adapted to suit your goals and time horizons. Though, it is important to note that borrowing money to invest and budgeting are key components.

Here is an example of how the assets and cash flow involved in a debt optimisation strategy using a “split loan”:

 

Where suitable, it is possible to extend on the strategy above by using the newly created investments as security for a margin loan, with the proceeds used to further invest. In this type of strategy the interest costs are still generally met from the home loan, with investment income also used to reduce the home loan balance.

 

May 19

Apart from the usual general tax planning strategies (eg. incur business expenses prior to 30 June to claim a tax deduction this financial year), there are only 2 main ways to reduce your tax:

1. Increase superannuation contributions; and

2. Prepay interest on borrowings for investments before 30 June.

This e-mail will focus on this second item.

With the solid performance of equity markets over the past 9 months, we have seen a significant amount of interest by investors looking to leverage back into the share market with the benefit of capital protection and tax efficiency.  This coupled with a reduction in volatility of shares and reduced borrowing costs have made share investments as attractive as ever.

Use Tax Money to pay for your Share Portfolio!

Here's how this strategy works:

You borrow an amount (say $50,000) from the bank to purchase $50,000 of blue chip shares before 30 June. Some banks will lend you a further amount for you to use to immediately pay back to them to prepay interest on the original $50,000 loan for the next 12 months.  Assuming that the ATO allows you to claim interest up to 6.95% and that your individual tax rate is 49%, using this strategy would result in a new tax deduction for you of $3,475. This would result in an additional TAX REFUND to you of $1,702.

You receive all dividends from the shares throughout the year.

You cannot lose your Capital!

If you use a capital PROTECTED share investment, your shares are 100% protected. This means that if the share market goes down, you don't lose any capital. And your shares go up in value, you keep all of the upside.

This is ideal for investors who want to have share investments but who don't want to have any chance of losing their capital.

Here is a brief summary of the features of a capital protected share investment:

100% leveraged and capital protected via a Limited Recourse Loan

  • Interest cost deductible up to benchmark RBA limit (currently 6.95% p.a.)
  • Menu of around 80 ASX listed securities, ETF’s, LIC’s or pre-selected portfolios
  • Full dividend and franking entitlements
  • Terms ranging from 1 to 5 years
  • Each security protected in its own right so no netting off winners and losers. Winners are kept and losers are handed back.  Minimum investment $50,000 equities

Interest rates are dependent on the shares chosen, the term of the investment, and the interest type (fixed or variable).

Your Action Plan

If you are looking for some tax relief by leveraging back into the share market, but want the added security of 100% capital protection, contact us TODAY and we will discuss your financial circumstances with you and provide you with a Statement of Advice tailored to your circumstances.

In summary, instead of paying some tax, you can use this money to prepay interest on a loan for shares with full 100% capital protection for the shares.

Apr 24

Tax Planning Strategy #1 - Establish a Self-Managed Super Fund

Posted by Matthew Bashford at Friday, April 24, 2015

 

Tax Planning Strategy #1:

Establish a Self-Managed Super Fund (SMSF) - How to make it your family's wealth VAULT and legally pay NIL tax

Everyone is talking about SMSFs these days. Recent changes to the laws for operating SMSFs have in our opinion made them an option that every one of our clients needs to consider.


Very simply, a SMSF is a super fund that you fully control. You make all the investment choices - including shares, managed funds, property, and cash. SMSFs can now borrow from a bank to purchase investment properties.

Strategy

Choosing the right STRATEGY for your SMSF is the key.

Here's a brilliant strategy called the Retirement Home Strategy:

An investor finds a property they'd like to live in during their retirement. They use money in their SMSF as a deposit and borrow into a special super fund borrowing arrangement with the bank to complete the transaction.

Warning: A member (or a relative of a member) of a SMSF by law cannot live in a property owned by a SMSF.

However, while the property is owned by the SMSF it's rented to UNRELATED INDIVIDUALS for a market-based rent.  Upon retirement the SMSF members start a pension and sell their current family home. They then use the proceeds from the sale of their home to buy the property from their SMSF at market rates.  The sale of the SMSF-held property is capital gains tax free because the SMSF is in pension phase. When the transaction is complete the super fund has liquid assets to pay their retirement income.

Estate Planning

Another key reason for using a SMSF is that it gives you very exact estate planning options. For example, you can nominate a specific dependent (spouse or child under 18) to receive your super benefit if you die. Unlike a Will, this cannot be contested.

Would you like NO TAX on your Investments?

Once you turn age 60, you can start to pay yourself a pension from your SMSF, and there is NO tax on income of the SMSF and NO tax on any capital gains.  This means you can gradually sell down assets (including property) held in your SMSF and pay NO TAX regardless of any capital gain you make.

We believe this is an absolutely brilliant outcome - and it's possibly far better than owning an investment property in your individual name or in a Family Trust.

Please contact our office to make a time to discuss your family's financial situation with us.

Your appointment with us may mean you have hundreds of thousands more in assets when you retire. What a difference that would make!

Apr 17

Tax Planning Starts Now!

Posted by Matthew Bashford at Friday, April 17, 2015

There's five key things that all business owners MUST consider RIGHT NOW!  Three of them are brilliant wealth creation ideas.  Please read on....

Tax Planning Starts Now!