Work and Wealth
4 tax minimisation strategies you need to know
While it’s good to have specific tax deductions for your tax return, too few people plan ahead with simple tax minimisation strategies. There are a number of strategies often used by the ‘rich’, that are legal, widely available and can make a big contribution towards growing your wealth. As Kerry Packer now famously said during a government committee hearing, “Of course I’m minimising my tax. If anybody in this country doesn’t minimise their tax they want their head read. As a government I can tell you you’re not spending it that well that we should be paying extra.”
1. Mortgage Offset Accounts
One of the easiest ways to be more tax effective is to keep savings in a mortgage offset account which can save thousands of dollars in tax and interest. There is a double impact, firstly it minimises your non-tax deductible interest and secondary you have no tax to pay since there is no interest income.
2. Invest in the lower income earner
For those are able to ‘share’ finances with a partner, investing in the name of the lower income earner is a great way to minimise tax. Rather than using joint accounts where both parties declare income why not consider structuring your finances so the lower income earner has the savings account or share portfolio and declares the income on their tax return. If both parties are earning similar amounts then the benefit is negligible (some benefit may exist if one person has high deductions) but if say one person was earning less than $37,000 and paying tax at 19% and the other earning over $80,000, paying tax at 37%. It makes a lot of sense (and money!) to have additional income being added at a tax rate of 19 cents in the dollar rather than 37 cents.
3. Business Expenses
Running a business can open up a whole new range of potential deductions. As an individual taxpayer expenses such as mobile phone, internet, car expenses, travel and even home office expenses can all be used to reduce your taxable income providing they are documented and have a direct link to income.
4. Investing Structures
Having the correct structure such as companies or trusts for investing can mean the difference between a large tax bill or a ‘manageable’ one. Having the structure for your objective is the key, if a flat tax rate is important then look at a company. If the ability to vary distribution of income and capital gains is important a trust or family trust should be considered. If you’re about to undertake an investment or believe your side business could become a significant investment then seek out advice and consider what could be the best structure.
There are a number of other possible ways to minimise your tax through superannuation, salary sacrifice, borrowing to invest, prepaying expenses and holding health insurance but these are often best for specific circumstances or expenses that are ‘add-ons’ to these general strategies. Take the advice of Kerry Packer by starting to implement some tax minimisation strategies. Remember if you are unsure on any tax matters you should seek the advice of an accountant, registered tax agent or financial planner.