|
What
is tax planning?
“Nothing
is certain but death and taxes”, according to the author of
Robinson Crusoe, Daniel Defoe. We all know that death is
unavoidable, but what about tax…?
In
Australia, taxes are used to pay for our roads, schools,
police, hospitals etc and are generally used to make Australia a
better place to live, but, does anybody want to pay more tax
than necessary?
Most of
us go to work and earn an income then we pay tax on that
income. After paying tax, and other household bills, we try
to save some money from what is left over each month for a rainy
day, and for our retirement. However, we also need to pay tax
on the income or interest accrued on our savings too. This
makes me think of my dog, going round and round, trying to chase
its own tail!
Tax
evasion is illegal, but tax minimisation is perfectly legal and
there are many investments that offer very good tax deductions thus
making them quite attractive. However, it is never a good
idea to make any financial investment solely with the intention of
reducing the tax liability.
When
you borrow funds to invest, the borrowing costs for that investment
are tax deductible. Such investments could be in Agriculture,
Shares or Property Investments. Most people are familiar with
borrowing money to purchase things; it could be for a car, their
home or for a business. Only borrowing costs of investments,
are tax deductible, earning the label ‘Good Debt’.
Depending on your financial situation, this type of debt can be tax
effective and can help you to build wealth and generate
income.
All
non-tax deductible loans - your home loan, credit card loans, and
other personal loans such as car loans are in fact ‘Bad
Debts’. They generally do not assist you with reducing your
taxable liability or increase your net wealth.
One of
the wealth creation strategies is to increase your “Good Debts” and
reduce “Bad Debts”.
Borrowing
money to invest is called Gearing. Gearing allows you to invest in
more shares or property than you could otherwise afford if you paid
in full with your own money. Gearing can be used to help
build your wealth, but doesn’t suit everyone.
Other
than making a claim on a deductible expense are there any other
options available to you? Salary sacrifice is one such
option. Again, just as with any strategy you need to see if
this is suitable for you. This mostly depends on your age and
personal circumstances. If you salary sacrifice more into
superannuation, how would that impact your life style? For
example, if you are over 55, you may be able to combine this with a
transition to retirement strategy.
So how
do you choose the most appropriate investment? What are your
choices? When do these choices become available to
you?
All
forms of gearing and investments carry risk please contact
Vino
Financial Freedom to
determine whether tax planning strategies are right for
you.
The product and economic information available
on this web site has been compiled by Vino Financial Freedom, from
data sources within the market, which are believed to be reliable.
Vino Financial Freedom, Australian Financial Services Limited,
associated companies or any of their employees, directors or agents
will not be liable for any loss or damage arising as a result of
reliance on this information by the reader (except for any
statutory liability which cannot be
excluded).
Information provided in this website is not intended to be
personal financial advice and is for general information
only.
Readers should only act on information after having received
professional advice appropriate to their personal
circumstances.
Vino Grundy (Suite 410, 1 Queens Road, Melbourne, Tel:
03 9863 7900, www.vinofinancialfreedom.com.au) is a qualified
financial planner and is not aligned with any product
provider or fund manager. Back
| 