6 legal tax-minimising strategies for wealth creation

Posted on May 20, 2015 by ATB Chartered Accountants

Here are 6 legal tax-minimising strategies that you can easily use – and they can make a significant difference to your overall wealth creation.

1. Mortgage Offset Account

Have you accumulated some cash and you’re not sure about what to do with it? If you have a home loan, putting the extra cash into an offset account can not only reduce the amount of interest payable on the loan, but it will also stop you paying tax on the interest you would otherwise have earned.

2. After-Tax Super Contributions

Using some of your after-tax earnings to contribute into super may make sense for you. The thing to focus on is the environment that your money is invested within. Compared with investing after-tax money in an investment in your own name, investing via super is taxed at a maximum of 15% on earnings and 10% on capital gains, and for those eligible for transition to retirement their money grows in a zero tax environment.

3. Discretionary Family Trust

An effective way to hold investments, a trust is a separate investment structure where assets are controlled by one or more persons (the trustees) on behalf of a group of other persons (the beneficiaries). A discretionary trust allows the trustee to decide who gets the income and capital the trust owns. These can suit someone on the highest tax bracket with family members who are on lower tax rates.

4. Transition to Retirement

If you are over 55, the combination of salary sacrificing pre-tax income into super, and drawing an income from super benefits can be very tax effective. Not only does it get more into your super fund but your cash flow remains the same. The income tax reduction comes about thanks to receiving less salary income (and therefore paying less tax) and more concessionally taxed pension income from your super fund.

5. Investment Bonds

Earnings from an investment bond are excluded from personal income tax because the bond provider pays the tax at 30% internally, leaving you nothing to declare on your tax return. To get the full benefits, you have to leave your money in the bond for 10 years. After this, there is NO tax to pay! It is possible to get access to the money before 10 years, but then there will be some tax payable.

6. An Investment Company

Setting up a company through which investments are bought is one way of ensuring the tax paid is never more than 30%. Income type assets are best held in a company, and growth style assets are best held by a super fund where the tax on capital gains is just 10%.

This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.