For seasoned investors, managing tax liabilities is critical to maximising returns and preserving wealth. As your investment portfolio grows, your tax situation becomes more complex. Finding effective strategies to reduce your tax burden may affect your overall financial health.
Before diving into strategies to reduce your tax burden, it’s important to understand the types of taxes that may apply to your investments in Australia:
Capital Gains Tax (CGT)
Capital Gains Tax is applied to the profit from selling an asset for more than its purchase price. The amount of CGT payable depends on the asset’s holding period and your marginal tax rate. Assets held over 12 months may qualify for a 50% CGT discount.
Income Tax
Income tax applies to the earnings generated by your investments, such as dividends, interest, or rental income. These earnings are added to your taxable income and taxed at your marginal tax rate.
Goods and Services Tax (GST)
While GST generally does not apply to financial supplies such as shares and bonds, it may be relevant for certain other investments, particularly in real estate or business ventures.
There are several strategies seasoned investors may employ to manage and reduce their tax burden:
Hold investments for longer than 12 months: One of the most straightforward strategies to reduce your capital gains tax is to hold investments for more than 12 months. By doing so, you may qualify for the 50% CGT discount, effectively halving the taxable amount of your capital gain. This strategy encourages long-term investing and may significantly reduce your tax liability when you eventually sell your assets.
Invest in real estate credit: By investing in a wholesale trust, you may benefit from the potential to earn income in a tax-efficient manner. Trust distributions may carry franking credits or other tax advantages, depending on the trust’s structure and the underlying investments. The Funding Income Trust is a managed investment scheme that offers regular income distributions.
Utilise negative gearing: Negative gearing is a popular strategy among property investors but may also apply to other investments. When the costs of holding an investment, such as interest on a loan, exceed the income generated, the resulting loss may offset other taxable income. This strategy may reduce your overall tax liability, but it’s important to consider the risks and ensure that the investment aligns with your long-term financial goals.
Maximise your superannuation contributions: Contributing to your superannuation is one of the most tax-effective ways to save for retirement while reducing your taxable income. Concessional contributions to superannuation, such as salary sacrifice or personal deductible contributions, are taxed at a flat rate of 15%, typically lower than most investors’ marginal tax rates. Maximising your concessional contributions may reduce your taxable income and grow your retirement savings in a tax-efficient environment.
Consider tax-effective charitable donations: Donating to eligible charities is a way to support causes you care about and may also provide tax benefits. Philanthropic donations over $2 to registered charities are tax-deductible, reducing your taxable income. By strategically timing your donations, you may maximise the tax benefit and reduce your overall tax liability.
Offset capital gains with capital losses: If you’ve incurred losses on certain investments, you may use these capital losses to offset capital gains from other investments. This strategy is known as tax-loss harvesting and may help reduce the capital gains tax you owe. If your capital losses exceed your gains, you may carry the remaining losses to offset future gains.
Structure investments in a family trust: Family trusts offer flexibility and tax efficiency by allowing income to be distributed to beneficiaries who may have lower marginal tax rates. By distributing income to family members in lower tax brackets, you may reduce the overall tax liability of the family unit. However, seeking professional advice when setting up and managing a trust is important to ensure compliance with tax laws and regulations.
The Funding Income Trust is a managed investment scheme that offers a diversified portfolio of property-backed loans, providing investors with regular income distributions. By investing in the Funding Income Trust, seasoned investors may benefit from:
Reducing your tax burden is key to effective investment management, especially for seasoned investors with complex portfolios. You may optimise your tax situation and maximise your returns by employing strategies such as holding investments for extended periods, utilising tax-efficient vehicles like the Funding Income Trust, and taking advantage of franking credits.
At Funding, we are committed to helping investors achieve their financial goals tax-efficiently. Whether you’re looking to generate regular income, diversify your portfolio, or reduce your tax liability, our Funding Income Trust offers a compelling solution.
For additional resources and information on tax-efficient investing and strategies to reduce your tax burden, explore these helpful links:
DISCLAIMER: The information provided on this page is for general informational and educational purposes only and is never intended as financial advice. While we strive to ensure that the content is accurate and up-to-date, it may not reflect the most current legal or financial developments. Always consult with a qualified financial advisor or professional before making any financial decisions. Use the information at your own risk.
