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Tax Planning

Paying a Lot of tax? 3 Tips to Maximise Your Financial Position and Get Ahead

Most clients come to us because they want to maximise their financial position and get ahead.

Below are three ways that we can help you achieve your financial goals.

If you are looking to reduce the amount of tax you pay and maximise your financial position, contact Financial Planning Expert or phone (03) 5974 4350.

1 – Reducing your income tax

Most of us don’t realise how much tax we are actually paying. For example, if you are earning $75,000 pa, you are paying around $17,000 pa in tax. Assuming you continue to work for 30 years, this equates to $510,000 using today’s tax rates. And this doesn’t account for any wage increases over the period.

So how can you reduce your income tax? Well appropriate strategies will of course depend on your individual circumstances, however some ways to reduce your income tax include salary sacrificing/packaging, maximising tax deductions by keeping good records, getting the right ownership structures in place before purchasing assets (such as joint ownership, a company, trust or self managed super fund), investing in tax-effective investment vehicles and asset classes, tax-efficient use of debt and taking out income protection insurance.

2- Transition to retirement

It is common these days for older workers to gradually reduce their working hours and ease into retirement. If this sounds like you and you’re aged 55 or greater, you may be able to benefit from a transition to retirement strategy.

This strategy is complex so let’s break it down into two parts.

Firstly, you start a pension from your superannuation fund to supplement your reduced employment income (remember you’ve reduced your working hours).

Secondly, your superannuation fund is topped up with salary sacrifice contributions to compensate for the pension payments coming out. Generally speaking, your net income position remains the same as before, so increased income is not a benefit of this strategy. The benefit is the tax you will save. Salary sacrifice contributions paid into your super fund and pension payments paid out of your super fund usually attract less tax than your regular salary. This means that less tax is paid on your income using a transition to retirement strategy. But where do the tax savings go? (remember your net income position remains the same as before). The tax savings end up in your super fund, meaning more money towards your retirement and less to the tax office.

3 – Reduce capital gains tax (CGT)

CGT applies when you sell an asset for a profit.

If the asset has been held for less than 12 months you will pay tax on 100% of the profit.

If the asset has been held for 12 months or more, the tax office gives you a discount and you’ll only pay tax on 50% of the gain.

Whilst it is not possible to avoid CGT altogether (that is, it will always apply when you sell an asset for a profit), strategies can be implemented to reduce (or in some cases, eliminate) CGT after the asset has been sold.

The key thing to remember here is to plan for the CGT implications well in advance. Ideally, this process should begin before the asset is even purchased by ensuring the ownership structure is correct. Assets can be owned in a number of ways; solely, jointly, as tenants in common, by a trust, company or self managed superannuation fund (SMSF).

Each structure has different CGT implications upon sale. The wrong choice here could mean that most of your profit goes to the tax office.

If you are looking to maximise your financial position and get ahead, contact Financial Planning Expert or phone (03) 5974 4350.