$40K,$80K,$120K,$180K
Pay the
tax you
are legally
obliged
to pay but
don’t leave
atipforthe
treasurer
portfolio may or may not go up in value but you must
at least ensure the income return on the investment
gives you an adequate return.
Apply the tax kicker
Onlyiftheinvestmentstandsonitsowntwofeetbefore
debtandtaxbenefitsarefactoredinshouldyoucon-
sidertakingmoreriskwithleverage.Ifitdoesn’t,debt
hasthepotentialtomakeabadinvestmentevenworse.
Iftheinvestmentdoesstackup,usingleverageto
positively gear (your net rental income exceeds your
interest cost), neutrally gear (they are equal) or nega-
tively gear (your interest cost exceeds your net rental
income)yourinvestmentpropertycanincreasereturns.
Alternatively,youmaywishtofocusonanETFport-
foliothatfavourssharesthatofferhigherfrankingcredits,
which typically include the big banks, consumer services
andindustrialstocks.Leveragingsuchaportfoliowilladd
more risk but can also increase the tax benefits.
As an investor, you receive a benefit for the tax the
companyyouinvestinhaspaid.Saythefirmearns$100
and pays tax on that of $30 (30% corporate tax rate)
andpaystheresttoyouasa$70dividend.Yourecord
$100 as assessable income but you are also entitled to
a$30frankingcredit.Soforsomeoneearningmore
than$180,000,assumingamarginaltaxrateof47%
(45%plus2%MedicareandNDISlevy),youwouldonly
paytaxat47%lessthe30%yougetacreditfor,or17%.
In my book that’s a win from a tax perspective!
HereI’vefocusedonthetaximplicationsofincome
returnsoninvestments.Forthoseonmorethan$180,000
it’sevenmoreimportanttoensureyouholdontoassets
formorethan12monthstoattractthecapitalgains tax
discount or you can double your tax bill.
STRATEGY 3
Health insurance to avoid surchargeThe Medicare and NDIS levy for all taxpayers (apart from
low-income earners and seniors) is 2% of taxable income.
On top of this, higher income earners may also have to pay
an extra 1.5% under the Medicare levy surcharge.
Ifyou’resingleandearnmorethan$90,000,oracou-
ple and earn more than $180,000 combined, and you don’t
have an appropriate level of private health insurance,
thenyouwillpaytheadditional1.5%ofyoursalaryas
the surcharge. This is similar to leaving a tax tip for the
treasurer–and,franklyIdon’tthinkyoushould.Fora
couple earning a combined $200,000, 1.5% is $3000 in
additional tax.
On the flipside, the cost of private health insurance
goes up materially each year. In February, the federal
government announces how much it will allow private
health insurers to increase fees in April. In 2017 the allowed
hike was 4.8%, three times the rate of inflation.
Soafamilyonthetoplevelofcoverpaid$200more,
withfeesjumpingfrom$4200to$4400ayear.Anindi-
vidualsawa$100hikefrom$1150to$1250pa.Theseare
significant rises, increasing pressure on already stretched
household budgets.
To make smart financial decisions, ensure your invest-
ing decisions stand on their own two feet and that tax,
whichisarealandmaterialcost,isfactoredintoyour
decision making. You should always pay that tax you are
legally obliged to pay but by making smart financial
decisionsyoucanensureyounever,everleaveatip.Claire Mackay is director of Quantum Financial. She is a
qualified chartered accountant, SMSF expert and lawyer.