If you control more than $30 million in net wealth, you might be considered a highly wealthy person in Australia. What the wealthy of Australia know that you might not know is how to pay less tax. You don’t have to currently be one of the highly wealthy Australians. Just learn to be more tax savvy!
Maximising, or “stacking” your superannuation is one way to substantially reduce your taxable income and boost your retirement savings at the same time. Your draw down is tax-free if you leave your super untouched until age 60. Australian tax law allows you to salary sacrifice up to $25,000 per year – if you are younger than 50 – or up to $50,000 if you are over 50 years.
Are you a small business person operating as a sole trader or partnership? You may pay less tax by incorporating your business into a private company. Your corporate tax rate under current Australian law would be 30 per cent instead of 45 per cent (the top personal marginal tax rate).
There are additional costs related to running an incorporated entity, as well as compliance requirements and auditing obligations to be aware of. Incorporating is not an easy do-it-yourself project. Seek professional legal and tax counsel to ensure you are structuring your company to best advantage.
One mortgage offset scenario is based on having accumulated extra cash to invest. If you currently are paying off a home loan, you might consider placing the extra cash into an offset account. This will help reduce the amount of interest payable on the loan and you will not be paying tax on interest that you might earn were you to deposit the cash in an interest-bearing savings account.
Investment bonds are returning to favour, primarily because earnings don’t need to appear on your tax return and you now have a greater choice in underlying assets.
Investment bonds can benefit younger people with marginal tax rates above 30 percent. Already contributing to their super, they may want additional money for non-retirement related purposes.
Investment bonds also favour people who are saving for their children’s education, executives under age 60 who may have already contributed the maximum concessional (pre-tax) amount to super, and older investors no longer contributing to super.
Keep in mind that you should plan to leave your money in the bond for 10 years in order to receive full tax benefits: you will pay no tax after the 10 years.
You may already make small contributions to charities but consider increasing your donations to fully tax deductible organisations (and save those contribution receipts). Your philanthropy benefits the organisation of your choice and is an excellent way of paying less tax.
Small donations and any purchases may seem like loose change in terms of tax deductions. But consider this: research indicates that Australians leave as much as $426 on the table in unclaimed tax each year. Save your all receipts, even if you are unsure whether anything from them can be claimed. Your tax accountant will be able to determine which to include on your tax filing.
It can be challenging to sort out ways to save money and pay less tax. Consider contacting the financial planning, tax, and legal specialists at ProAdviser.com.au. They can help you assess your current financial standing and help you find ways to pay less tax.
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