From Pearler: we do our best to share general resources so you can do your own research. When it comes to tax, this is personal to your investing and financial position. We are not a tax advisor and don't have any information about your personal situation. When investing, there may be tax implications and you should get advice from a licensed tax adviser.
In Australia, we pay a lot of tax, and it seems to be increasing every year. Every dollar of tax you save is another dollar you can invest, save, or spend on your lifestyle.
With the end of the financial year around the corner, there are a few things you should be thinking about how to minimise your tax position and maximise your tax refund this tax time.
The first important thing is to understand what is tax deductible and what isn't. You want to use the rules to your advantage but stay on the right side of the ATO.
Next, then, is keeping good records. Most people don’t do this to the level they should, which makes getting the most back at tax time more difficult and time-consuming than it needs to be.
Another opportunity to boost your tax refund this financial year is to bring forward tax-deductible expenses. If you’re planning on spending on something that would give you tax deductions, bringing forward the expense within this financial year will mean you’ll receive the deduction one year sooner.
The last piece of the puzzle is around being tax-smart when you invest, which will give you some benefit this year - but likely many more benefits for the years to come. To invest tax-smart, there are some key things you need to be across.
Being tax-smart with your investments ahead of tax time
Firstly, understand marginal tax rates and how to use them to your advantage. In Australia you only get one tax rate for all income received through your salary, interest income, dividends, property and rental income, and capital gains - basically all income from all sources. The higher your income, the more tax you pay, so the more value there is in being strategic with what, where, and how you invest.
Then, you should be aware that tax rates are different for different tax entities. For example, superannuation, trusts, and investment companies all have different tax rates. Using the right entity for the right investments at the right time can make a huge difference to your after-tax investment return.
You should also be aware that not all investments are made the same when it comes to taxes. For example, some dividends have tax (franking) credits attached to them and others don’t. This can mean you get more after-tax income from the same level of wealth if you have the right income.
The final thing you need to get right to invest smarter with tax is tax planning before you invest. It’s difficult (and expensive) to restructure things in the future, so get this right before you get too far down the path and your future self will thank you for it.
The tax rules can be complex, confusing, and even overwhelming - but the benefit of getting this right means the juice is worth the squeeze. Understand tax and how to use the rules to your advantage and you’ll fast track your investing success.
Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth, and Author of the Amazon Best Selling Book ‘Get Unstuck: Your guide to creating a life not limited by money’.
Ben has just launched a series of free online money education workshops in partnership with Pearler to help you get on the front financial foot. You can register your place in the next workshop here to learn how to make the most of your tax return.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation, or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.
