Money Australia – July 2017

Smart strategies

for every income

bracket

a year

$40k

STORY

CATHERINE

SHARPLES-

RUSHBROOKE

i ncome or ot her a ssets to f u nd t he st rateg y. Just a s w it h

any other investment, it is important to understand the

risks – when borrowing is involved, the risks of this

type of strategy are increased.

If you’re investing in Australian shares, understand

whether the dividends are franked. Franking credits

(also commonly referred to as imputation credits) can

be used to reduce income tax or even potentially be

received as a tax refund (depending on the investor’s

marginal tax rate). In effect, they are a way of passing

on the tax paid by the underlying company to prevent

double taxation of profits.

For those planning their retirement, many retirees can

survive on $40,000pa. This may include a combination

of d raw i ng on a n i ncome st rea m from supera n nuation ,

dividends, rent and/or interest from investments outside

super and even the age pension.

SOME TIPS ARE:

1

Look at boosting your superannuation

In the lead-up to retirement, try to top up your sav-

ings. The federal government provides extra incentives

for lower income earners who contribute to their super.

Examples of this are:

• If your assessable income plus reportable fringe
  benefits plus reportable employer super contributions
  is less than $36,813 and you make a non-concessional
  contribution of $1000 to super, the government could
  make a co-contribution of up to $500. The co-contri-
  bution cuts out completely once your personal income
  exceeds $51,813.


• If your spouse’s assessable income plus reportable

I

f you’re earning $40,000 there are a few things

you could do to make the most of your money.

If you are part of a couple and your partner is

earning quite a bit more than you, consider in

whose name the investments should be held.

When they are held in the lower-earning partner’s name

the income (interest, rent or dividends) could be taxed

at a lower marginal rate.

For example, someone with an income (after deduc-

tions) of $40,000pa is likely to be on a marginal tax

rate of up to 32.5% (not including the Medicare levy);

if their partner earns $90,000pa they are likely to be

on a marginal rate of up to 37%. Holding assets in the

name of the partner who is paying less tax will have

the effect of boosting investment returns. If you already

own the asset it is very important to obtain advice

before transferring assets, as there may be tax payable

on the transfer.

We often hear a lot about negative gearing but positive

gearing might work for certain people in this income

bracket. With negative gearing, the expenses (for

example, loan interest and other costs) are greater than

the income earned from the investment, which means

that the investor is in an income-loss position. Under

current tax law, the investor is able to use that loss to

offset ta x on i ncome from ot her sou rces. It ’s rea l ly on ly

worthwhile if the asset rises in value over time.

Positive gearing flips this on its head as the investor

makes a real profit from very early on with the income

(rental income or dividends) being greater than the

expenses. The income is taxed at the investor’s mar-

ginal rate, just like any other income. It means that

the investor does not have to dip into other sources of

Even on

a lower

income,

topping up

super and

choosing the

right asset

allocation

can make a

difference to

your future

lifestyle

COVER STORY $40K, $80K, $120K, $180K