| 02 9982 2466

Tax-effective investment options

Determining where to invest requires multiple factors to be taken into consideration. One such factor may be tax efficiency. The tax charged on income from a tax-effective investment is less than the individual’s marginal tax rate.

Superannuation

The government provides incentives to save through Super, which make it one of the most tax-effective investments. Contributing to your super and salary sacrifice is only taxed at 15% if yearly income is under $250,000 (30% if over $250,000 which is still tax-effective). The maximum tax that can be charged on investment income in super is 15%, and 10% on capital gains. This is lower than marginal rates at which taxation occurs for most individuals.

Employees should ensure that contributions are not above $25,000, as this is the cap on concessional contributions. Additional tax needs to be paid on any amount claimed higher than the cap.

Insurance Bonds

Insurance companies offer insurance bonds as long term investment options. Earnings in an investment bond are taxed at 30% (Corporate tax rate), which makes them tax-effective for those whose marginal tax rate is above 30%. They are further tax-effective if one is looking to invest for over 10 years. This is because although withdrawals can be made during the 10 years, if no withdrawals are made, no further tax is payable.

The ATO warns against tax-driven schemes, which offer tax concessions for investing in certain assets that provide income in the future as these may be high risk or part of a scam. Investing in superannuation or insurance bonds are safe and reliable methods which don’t pose these concerns.

Posted on 1 October '20 by , under Tax.

Leave a Comment

You must be logged in to post a comment.

Join Our Mailing List!

Subscribe to our mailing list to receive all the latest financial newsletter updates as well as information on important dates on our business calendar.

Recent Updates

Firm News

What property investors need to look out for

All investments have an aspect of risk and property investment is no different. How comfortable you are with the risk is generally an indication of your financial situation, age and expertise. There are a few common areas that pose risks to properties that investors should be aware of before entering into the market.

Market risk

Like other forms of investing, there is the danger of the market crashing or seeing a significant turn. By investing solely in property, you run the risk of lack of diversification, meaning if the market were to shift, so would your investments. You can slightly combat this by purchasing properties in different states all over Australia, but if the wider property market crashes this is unlikely to relieve risk.

Lack of liquidity

Liquidity is how accessible your money within the investment is. Real estate investment lacks liquidity, meaning an investor needs to be thinking for the long term. From this is the possibility that an investor may be unable to buy or sell an investment quickly when they wish due to limited opportunities. Liquidity risk in Australian property can be lessened through investing in capital city suburbs with high demand and limited supply.

Tenants and damage

Tenants are apart of the deal when investing property. Particularly bad tenants can affect your cash flow if they don't pay their rent on time and may leave your property damaged. A tangible asset, such as property, can face risks like natural disasters, fire, damage by tenants, robbery or vandalism. Finding a good insurance policy is a means of managing the physical risks associated with real estate investment.

Maintenance

Property investment isn't one that you can set and forget, it requires attention and upkeep. Landlords and property owners have a responsibility to keep their buildings safe and livable for tenants. Good time management and a solid knowledge of the property will better equip you to handle these hidden problems.

Business Calender