FINANCIAL STRATEGIES FOR INDIVIDUALS
Our taxation system has a core principle that those on higher personal incomes pay a greater percentage of their income as income tax, than those on lower personal incomes.
Tax Planning involves reducing the amount of tax paid by an individual or their entity through diverting, delaying or deferring the income tax.
The following examples illustrate this;
Negative Gearing – Property
Peter and Nicole have owned their house for ten years. During that time they have reduced their home loan and seen the value of their house rise. Their incomes have also risen and their home loan is easier to manage.
They decide to purchase an investment property with 100% debt using the new property and their equity in their own home to support this loan. We showed Peter and Nicole that their rental property result might be:
|Rent less holding and management costs:||4% of $450,000|
|Depreciation and building write off:||(2%) of $450,000|
|Interest with 100% lending:||(7.5%) of $450,000|
|Loss from rental property:||(5.5%) of $450,000|
The cost of the investment property was $450,000. This Negative Gearing strategy gave Peter and Nicole a tax deduction of $24,750. We helped them decide which name to purchase the property in, and did calculations for them to see the tax effect of their expected capital growth.
Negative Gearing – Shares
In the same way that Peter and Nicole used the equity in their home to purchase an investment property, they could have used that equity to purchase shares, again let’s assume 100% debt.
Dividends might provide a yield of 5% (gross) and the interest cost might be 7.5%, creating a taxation deduction of $2,500.00 for every $100,000.00 spent on shares.
Richard and Mary are aged in their late 40’s. Richard is a senior electrician at a local company. Mary is a nursing sister. Their two children have now started in the workforce and the family finds that they are financially comfortable. Richard drives a work utility and they wish to update the family sedan, as they regularly drive to Townsville to see their family.
We explained to Richard and Mary that there could be tax savings by negotiating with his employer to package the new car, based on their circumstances.
Mary needs a new laptop so she can access reports at home and research articles. The hospital will not supply staff with home computers but will allow salary sacrifice of a laptop if used for work purposes.
We explained to Mary the tax and GST savings available to her with this strategy.
Richard earns a wage of $120,000 per year and his employer contributes 9% ($10,800) into superannuation as required by law.
We helped Richard understand the tax savings and family wealth improvements of sacrificing some of his wage into additional superannuation contributions.