We all have to pay taxes. Taxes are good for the nation. However, there's no point paying any more than you have to.
People often tell me that they want to reduce their tax and they've heard investing is a good way to do this. However, this is not the right way to think about it and here's why.
The primary objective of investing should always be to create wealth or profit. This is done by aiming for growth (price appreciation) and/or income (dividends, interest, rent and so on). If the main reason you choose an investment is to reduce your tax, those growth/profit considerations sometimes become secondary. The result is that sometimes you end up with a lower quality asset.
So what about other well-known tax reduction strategies? Negative gearing for example. Most people are aware of negative gearing (borrowing to invest) strategies to reduce tax. But negative gearing is not suitable for everyone. There may be other more efficient strategies to help optimise your financial position.
Some examples of these are are:
- Salary sacrifice through concessional contributions
- Non-concessional contributions
- Re contribution
- Income splitting
- Utilising the CGT concessions
- Utilising small business concessions
- Franking credits
- Debt recycling
- Installment gearing
- Asset ownership considerations
- Title buy outs
- Transition to retirement strategy
- Insurance Bonds
- Account-based pensions
This is a complex area, not a “one size fits all”. Therefore it's best to seek professional financial advice which focusses on your own personal circumstances.
Nobody loves taxes. But you have to deal with them in a pro-active way. Lack of proper tax planning leads to a waste of dollars that could have been put towards your nest egg.