COVER STORYSMART STRATEGIESFOR EVERY INCOME BRACKET
STORY
CLAIRE
MACKAY
issue, most of your family’s tax benefit will come from
the higher-income earner salary sacrificing to their super.
Another way to look at this is the way my retired
clients do: “I’ve never regretted putting more money
into my super.” So my advice is that, yes, governments
will never stop tinkering with super and the rules will
definitely change over time. When you come to retire-
ment, super may not be as good as it is today but it will
always be better than having your money in the normal
taxed environment.
So turbocharge your salary sacrifice contributions
today to help fund your dream retirement tomorrow.STRATEGY 2
Use good debt to build your wealth
“Bad” debt finances things that don’t add to your wealth
or will typically lose value over time. In this category
I’d classify credit card debt, store card debt, car loans
and personal loans. Before you even consider good debt,
ensure you pay off all your bad debts.
By contrast, good debt builds your wealth. I classify
investment loans, business loans, equipment loans,
mortgages and education loans as good debt. Some of
these are tax deductible.
For those who earn over $180,000, a dependable
wealth strategy in recent decades involves a tax-effec-
tive investment loan to fund an investment property
or an investment portfolio.Don’t get emotional about any investment
Run the numbers and let them speak for themselves. For
a new property, estimate your total purchase price (includ-
ing stamp duty, legals, etc) and speak to agents to estimate
a realistic gross rental. Deduct an estimate of running
costs (insurance, management fees, maintenance, etc) to
get your expected net rental yield. Divide your net rental
yield in dollars by your total purchase price in dollars to
get your net yield. Ideally that should be above 3%, or
you’re earning less than cash rates but taking more risk.
For an investment in a portfolio of diversified shares
or exchange traded funds (ETF), estimate the dividend
the portfolio will throw off to calculate the net yield.
You are likely to also be expecting capital gains over
time but you need to be mindful of the increasing fears
of market corrections. An investment property orA
s a certified financial planner I know
that every investing decision you make
has to stand on its own feet. As a char-
tered accountant I also know that you
should always pay the correct amount
of tax but you should never leave a tip. Frankly, our
politicians don’t deserve a tip.
For those on higher incomes, such as our theoretical
dual-income couple, who earn $140,000 and $40,000,
taxes are a real and material expense that need to be
considered when making smart investment decisions.STRATEGY 1
Salary sacrifice to turbocharge your super
Depending on your age, if a couple earn more than
$180,000 there are a number of likely expenses they
face. Mortgage repayments, living expenses, private
school fees and travel/entertainment all normally chew
up a significant portion of take-home pay.
Regardless of age, my most financially successful
clients allocate a portion of their income to top up their
superannuation. Many seek to retire early and they
know they will need to fund 25 to 30 years of their
dream retirement. So every little bit helps.
For someone earning $140,000, potentially 37¢ in the
dollar goes in income tax, 2¢ in Medicare and NDIS
levy and 1.5¢ in medical levy surcharge (if you’re a
couple with combined income of $180,000 with no
private health insurance). So you could end up with as
little as 59.5¢ after tax from every extra dollar you earn.
By comparison, if you salary sacrifice pre-tax income
into super the tax is capped at 15%. So a salary sacrifice
of $25,000 (the limit from July 1, 2017) will save 25.5¢
in every dollar in tax. Instead of you having 59.5¢ in the
dollar, your super receives 85c in the dollar. Of course,
you can’t access it until you’re 60 and retired, but that
money will also grow quicker in the concessionally
taxed environment of super. You win on tax both ways!
The tax benefit for a partner earning $40,000 is not
a s la rge. Ha l f of t hei r i ncome is ta x free (up to t he t h resh-
old of $18 , 201) a nd above t hat t hei r i ncome up to $37,0 0 0
is taxed at 19% (potentially 21.5% if you add Medicare
levy and surcharge). So the advantage between having
income taxed at 19% (or 21.5%) and a contribution taxed
at 15% in super is not as beneficial. So if cash flow is anHigher
earners,
such as
dual-income
couples,
need to
make smart
decisions to
maximise
wealth and
minimise tax
$180k
a year