Tax Planning

					Basic principles
 There are many perfectly legal and socially
  acceptable ways to increase your wealth in a tax
  efficient manner. Some of these methods are very
  powerful. Legitimate methods of increasing your
  tax efficiency are called “tax planning”.
 Methods that are unlawful are categorised under
  two different labels:
   “Tax avoidance” is where you set up contrived accounting
    structures and strategies that abuse a loophole so you can
    claim large tax deductions or take advantage of some
    benefit that was never intended to be used in such a way.
   “Tax evasion” is where you deliberately try to hide income
    from the Tax Office, by various methods including secret
    bank accounts, not recording cash transactions, “cooking
    the books” etc.
The focus of tax planning
 Tax planning should only ever be done with a view to
    increasing your total wealth.
   There are some people that enter into all sorts of dubious
    arrangements in order to obtain a tax deduction, including
    trying to minimise their income.
   Minimising your income is silly, what you want to do is
    increase your assets and/or after tax income.
   Some popular tax planning strategies are highly effective at
    reducing your tax, but produce little benefit in terms of
    wealth creation. Some strategies actually make you worse
    off, either immediately or in the long term.
   Hence, tax planning is just a subset of overall financial
    planning, which needs to take into account investment
    strategy, retirement planning, wealth building etc.
  Legality and ethics
 There is always a grey area between tax planning, tax avoidance
  and tax evasion, and the Australian Tax Office has a surprising
  amount of discretion to decide where the boundaries lie.
 It should be remembered that just because some “expert” says it
  is ok, doesn’t mean that it is ok. Also remember that just
  because a tax adviser openly advertises the strategy in a
  newspaper doesn’t mean the Australian Tax Office has approved
  the scheme. There have been many high profile prosecutions
  over the years and the fact that “everyone does it” makes the ATO
  more likely to shut it down.
 In other words, be careful about listening to advisers that seem
  to recommend “too good to be true” strategies like clever
  loopholes and novel types of trust that are supposedly a closely
  guarded secret of “the rich”.
 Serious penalties including huge fines and jail terms may apply if
  you do something illegal. Blaming your advisor usually won’t get
  you off the hook.
  “The Secrets of the Super Rich”
 Contrary to what many “poor” and “middle class” people have
  been led to believe, there really are no secret techniques used by
  the wealthy that enable them to get through life paying little or no
  tax.
 Wealthy people often employ very good advisors but strategies
  used by the wealthy are almost always the same simple strategies
  mentioned in this presentation. The difference is that a skilled
  advisor knows how to best combine these strategies for overall
  results.
 People generally get wealthy not by using some flashy “secret”
  technique, but because they were good at building a business or
  investing wisely.
 Gurus promoting the idea of “secrets” are usually conmen seeking
  to dupe the poor and middle class, you generally don’t find
  millionaires lining up to attend $10,000 seminars advertised in the
  newspaper. Most wealthy people that I know scoff at such
  seminars.
There are many different types of tax
planning strategies:
 Strategies for obtaining tax deductions
 Strategies for obtaining tax offsets (credits)
 Strategies for moving income away from an entity
  paying a high rate of tax to an entity paying a lower
  rate of tax.
 Strategies for moving profits and losses between
  tax years, either to defer tax or take advantage of a
  more favourable tax rate.
 Strategies for reducing the amount of assessable
  capital gains from an investment sold at a profit.
Deductions vs offsets
 When you claim a tax deduction for something, you
  obtain a tax benefit equal to the amount of tax you
  would have paid on that income at your tax rate.
  For example, if you are on the top marginal tax rate
  of 48.5%, claiming a $100 Tax deduction will
  produce a tax benefit of $48.50.
 An offset is a credit against tax payable. If you are
 entitled to a $100 tax offset, your total tax bill will be
 reduced by the full $100.
Moving income between entities on
different tax rates a very broad meaning and
 The term “entity” has
  can include different people, companies and
  superannuation funds.
 A common and very simple example of this is
  when a couple make income producing
  investments in the name of the partner on the
  lower tax rate, often a non-employed spouse.
 More complex strategies may involve structures
  like a discretionary trust, the trustee may be able
  to choose the best way to distribute income
  between several beneficiaries which may include
  people or companies.
Moving income between tax years
 There are many ways to move income between tax
  years. If you are working now but likely not to be
  working in a few years (retired, holiday, ill etc), then
  you may be on a lower tax rate then. It might be
  sensible to defer the sale of any assets trading at a
  capital gain until the lower income year.
 Other times, people may wish to bring forward
  income if they expect a substantial increase in
  taxable income in the future.
 A powerful way to move income from this tax year
  into a tax year that may be many years from now is
  to invest in an agribusiness scheme.
         tax efficient investing
More the biggest expenses to a successful
 One of
  investor is capital gains tax (CGT).
 Every time you sell an eligible asset at a profit, you
  need to remit part of that gain to the Australian
  Tax Office as CGT.
 A discount of 50% applies if you hold the asset for
  more than one year, so medium to long term
  investments are vastly more tax efficient than
  shorter term trades.
 Many people overlook the fact that if you defer the
  realisation of a capital gain you get to keep your
  unrealised tax debt in the market earning you
  dividends. There is actually a small but significant
  increase in your effective rate of return if you can
  keep portfolio turnover down.
Managed funds and tax efficiency
 It pays to check on the tax efficiency of any
  managed fund you are thinking of investing in.
 Some funds have a relatively low portfolio turnover
  and tend to actively manage their taxable
  distributions to reduce the tax burden to their
  investors.
 Other funds trade excessively, and make huge
  distributions every year, much of it non-
  discountable short term capital gains.
 Obtaining such information isn’t easy if you are a
  general member of the public, this is where a good
  financial advisor can be of assistance.
Tax offsets
 There are so many different tax offsets that you
  should talk to an accountant to see which ones you
  can claim.
 Common ones include franking credits on share
  dividends, low income tax offset, Senior
  Australian’s Tax Offset, spouse superannuation
  contributions offset, personal super contributions
  offset, dependent spouse offset, family tax benefits
  part A and B, baby bonus and many more.
The three tax systems of Australia
 Personal income is taxed in Australia on a
  marginal tax rate system. The higher your income,
  the higher the average rate of tax you pay. Capital
  gains on assets held more than one year are taxed
  at half of your marginal tax rate.
 Corporations in Australia pay a flat rate of tax on
  income of 30%. No discounts apply to capital
  gains.
 Superannuation funds pay tax of 15% on income
  and 10% on long term capital gains. A surcharge
  may also apply for contributions for high income
  earners.
 Arguably GST is counted as a fourth tax system,
  but is outside the scope of this discussion as it has
  limited applicability to investment strategies.
Personal tax rates for Australian residents 2004/2005
 Taxable income                  Tax payable*

 $0 to $6,000                    Nil

 $6,001 to $21,600               $0 + 17% of excess over
                                 $6,000
 $21,601 to $58,000              $2,652 + 30% of excess over
                                 $21,600
 $58,001 to $70,000              $13,572 + 42% of excess over
                                 $58,000
 $70,000 plus                    $18,612 + 47% of excess over
                                 $70,000
  * Medicare levy of 1.5% may also apply
 Personal tax system cont’d
 Contrary to what many people think, your marginal tax rate is
  not equal to your average tax rate.
 For example, if your income is $80,000, you will be on the top
  marginal tax rate. Including Medicare Levy, the marginal tax
  rate of such a taxpayer is 48.5%.
 The amount of tax actually paid by someone earning $80,000 is
  $24,512 including Medicare Levy. This works out to an effective
  tax rate of about 31%. The top marginal tax rate only applies on
  the last $10,000 of income, though of course any additional
  income would be taxed at 48.5% and most tax planning that we
  do will be on dollars that would be taxed at the highest rate.
 For long term capital gains (asset held more than one year), the
  capital gain profit is first discounted by 50% and then added to
  assessable income at marginal tax rates.
Companies
 Companies pay tax at a flat rate of 30%. This applies to both
    income and capital gains.
   High income investors often buy investments in the name of a
    Pty Ltd company so they will be taxed at a maximum 30% on
    income, though investors need to take account of the fact that
    capital gains will always be taxed at 30%, rather than the effective
    top rate of 24.25% paid on long term gains earned in the name of
    a person.
   Companies are distinct tax entities recognised by the Tax Office,
    and can retain income and assets in their own name and need to
    lodge their own tax returns.
   A common tax planning strategy is to retain and reinvest income
    in a company, only drawing a dividend when the shareholder’s
    tax bracket equals 30% or less.
   Companies can be used as an efficient “parking” vehicle to defer
    personal income tax.
 Trusts and other structures
 Unlike a person, company or a superannuation fund, trusts are
  not entities that pay tax. A trust is a “fiduciarial obligation”
  between a trustee and the beneficiaries.
 Investments can be made in the name of a trust, but all income
  and capital gains must be distributed to beneficiaries every year
  or the trustee will pay tax at the top marginal tax rate on
  undistributed income.
 A “fixed” trust is set up so that all beneficiaries get a fixed
  entitlement to the income, capital gains and capital of the
  trust. “Discretionary” trusts give the trustee a lot of flexibility
  in determining how to make distributions and offer significant
  tax planning opportunities.
 Beneficiaries of trusts can be people, companies, partnerships
  and other trusts.
Superannuation
 Although the superannuation system is
  complicated and many people do not trust it,
  super is still one of the most tax efficient ways to
  build wealth.
 You only pay 15% tax on income in a super fund
  and the capital gains tax rate on assets held for
  more than a year is 10%.
 Another advantage of super is that this is one of
  the most difficult assets for a creditor to get his
  hands on, so superannuation is ideally suited to
  business owners and professionals wanting a
  protected place to store their long term savings.
  Reasonable benefits limits
 Superannuation is an excellent savings vehicle for long term
  retirement savings. The tax efficiency and the asset protection
  characteristics are so good that limits have been introduced that
  stop very wealthy people from taking too much advantage of it.
 A “reasonable benefits limit” (RBL) is the most one can take out of
  super while still obtaining maximum tax concessions.
 The lump sum RBL is $619,223 in the 2004/05 tax year. This figure
  is indexed each year with inflation.
 You can access a higher RBL, the “pension RBL” by putting at least
  half your benefit into certain “complying” income streams. The
  pension RBL is $1,238,440 in 2004/05. The pension RBL is higher
  to encourage people to convert their super into pensions that will
  last at least for their life expectancy, rather than withdrawing it
  and spending it in a short period of time.
Withdrawing from super – lump sums
 There are various components of super which are all taxed
    differently (we’ll gloss over the complexities in this presentation),
    the most common components are “Pre 83”, “Post 83” and
    “Undeducted”.
   5% of Pre 83 money withdrawn from a super fund is taxed at
    marginal tax rates. 95% is tax free.
   In the 2004/05 tax year, you can withdraw $123,808 of “post 83”
    money from a superannuation fund before having to pay any tax
    on this lump sum. This figure is indexed upwards every year. The
    balance of lump sum withdrawals is taxed at 15% (+ 1.5%
    Medicare), subject to reasonable benefits limits.
   Undeducted components can be withdrawn from super tax free.
   Pre and Post 83 untaxed amounts withdrawn in excess of your
    reasonable benefit limit are taxed at 47% plus Medicare, post 83
    taxed amounts drawn as a lump sum in excess of your RBL are
    taxed at 38%.
Withdrawing from super – income streams
 Income streams are taxed at marginal tax rates, minus a
  15% superannuation pension tax offset. The earnings
  within the fund itself are tax free once the fund begins
  paying an income stream.
 Undeducted components create a “deductible” amount
  of the income stream that is tax exempt. The size of the
  deductible component varies depending on the type of
  income stream, the term of the payments and your life
  expectancy.
 Pre and Post 83 money withdrawn in the form of an
  income stream that is in excess of the Reasonable
  Benefits Limit is taxed at normal marginal tax rates, but
  doesn’t attract the 15% pension tax offset.
Superannuation contributions surcharge
 If your “adjusted taxable income” (ATI) exceeds certain
  thresholds, an additional tax is paid on contributions to
  superannuation. This tax does not affect earnings, just
  contributions.
 Adjusted taxable income is your total remuneration,
  which includes salary, superannuation contributions and
  fringe benefits.
 If your ATI exceeds $99,710 (2004/05 tax year, figure is
  indexed annually), you may be liable to pay some
  surcharge on your contributions. This surcharge rate
  increases from 0 to 14.5% when your ATI reaches
  $121,075. Below $94,691 surcharge is zero, above $121,075
  it is 14.5%. If your ATI is inside this range, a formula will
  apply.
Superannuation contributions surcharge cont’d
 Surcharge rate = (ATI - $99,710)/1,709.2. (in the 2004/05 tax
  year)
 For example, if your ATI is $110,000, your surcharge rate will
  be 6.02036%. Note that surcharge rates are always worked
  out to 5 decimal places.
 If your remuneration was $85,000 salary plus $25,000 super,
  you’d pay 6.02036% x $25,000 = $1,505.09 in surcharge, in
  addition to the $3,750 (15% x $25,000) you would have paid
  anyway in “contributions tax”.
Strategies for obtaining tax deductions:
 Salary packaging or direct deductions of business
  expenses (if eligible).
 Claiming work, transport and some self-education
  expenses as deductions.
 Negative gearing (in fact, any gearing).
 Deductions associated with property (depreciation
  allowances etc).
 Agribusiness.
Salary packaging
 A “salary sacrifice” arrangement is a deal agreed to between
  an employee and an employer to swap some cash salary for
  another type of non-cash benefit.
 You would do this because taking remuneration in the form
  of a non-cash benefit often means you don’t have to pay
  income tax on that benefit.
 When you negotiate a remuneration scheme with an
  employer that includes salary sacrifice, this is called a
  “salary package”.
Salary packaging cont’d
 You can salary package virtually anything, but to
  stop abusive arrangements there is an extra tax
  paid by the employer called Fringe Benefits Tax.
  (FBT)
 The amount of FBT paid on items that attract the
  full rate of FBT is calculated such that the
  employer pays the same amount of tax as if you
 had received it yourself and paid the top marginal
 tax rate (48.5%). Naturally, the employer will have
 to pass this cost on to you and so you would gain
 no benefit on many packaged items.
Salary packaging cont’d
 Some benefits attract no FBT, some attract a
  partial amount of FBT and some the full rate of
  FBT. There is a tax saving if you take FBT exempt
  items or items that attract FBT at a concessional
  rate.
 Common FBT exempt benefits: superannuation,
  employee share schemes, laptop computers,
  mobile phones and many benefits that would be
  “otherwise deductible”.
 The most commonly packaged benefit that attracts
  a concessional rate of FBT is a car. Depending on
  what you use the car for and how far you drive it
  every year, there can be a substantial tax saving for
  salary packaging a car, usually with some sort of
  lease arrangement.
Maximum deductible contributions
                             Age          ABL             MDC*
An employer can only
package a limited amount < 35          $13,934 $16,912
of income into
superannuation and claim a 35 – 49 $38,702 $49,936
tax deduction on it. This
limit is called the Age    50         $94,980 $126,306
Based Limit, and the
maximum contribution on       * Self employed and unsupported
which deductions can be       people can claim a tax deduction on
claimed is called a           100% of the first $5,000 contributed
Maximum Deductible            and 75% of the balance. Employers
Contribution (MDC).           can claim a 100% tax deduction on
                                 all contributions for their employees
                                 up to the employee’s age based limit.
Income splitting
 Income splitting is a very common strategy and is often
  quite easy to implement.
 If you can make investments in the name of a spouse on a
  lower marginal tax rate (for example, buy shares, managed
  funds or invest in term deposits) then obviously less tax
  will be paid than if investments are made in the name of
  the person on the higher tax rate.
 Discretionary trusts allow a trustee to split income in a very
  flexible manner, being able to potentially choose from a
  number of beneficiaries.
 Note that there are special high tax rates for minors that
  receive “unearned income”, these tax rates run as high as
  66%. The tax free threshold for a person under 18 years is
  only $416, but with the low income tax offset it effectively
  rises to about $643.
Income splitting continued
You can income split by investing in the name of a
person on a lower marginal tax rate or, provided you
have sufficient investment income to make paying the
extra accounting costs worthwhile, you can invest via a
discretionary trust that allows you to decide every year
who gets income and capital gains distributions.
Negative gearing
 “Gearing” is the practice of borrowing money for
  investments like shares or property. “Negative gearing” is
  where the amount of income received from the investment is
  less than the interest expense. You claim the shortfall as a
  tax deduction. You can also do “positive gearing” where the
  income exceeds the interest and if you are able to balance the
  cost it would be called “neutral gearing”.
 Negative gearing is particularly tax efficient because while
  the interest shortfall is 100% tax deductible, the capital gain
  (assuming there is one) will only ever be taxed at half your
  marginal tax rate if you hold for more than one year. When
  you run the numbers on this, the amount of return you need
  on your growth investments is less in a simple percentage
  term than the interest rate on your loan.
 Negative gearing continued
 Negative gearing is not a tax planning strategy as such,
  it is a tax efficient wealth building strategy.
 It is important to note that when you borrow to invest
  you introduce extra risks related to your ability to
  service the debt and a greater level of exposure to
  market risk due to the larger portfolio. Some forms of
  borrowing introduce other risks as well, like the risk of
  margin calls.
 Unless you borrow vast amounts of money it is
  unlikely that the size of the tax deductions will be
  large enough to make a serious dent on your assessable
  income. That is why I don’t classify this as a pure tax
  planning strategy.
 Gearing and risk
 Although the profits can be fantastic, the risks of
  gearing should not be ignored.
 Borrowing $100,000 to invest means you have $100,000
  at risk in the market. If there is a decline of 30%, and
  declines of this size are common in both shares and
  property, you would lose $30,000. If you need to sell
  the investment you may end up with a debt you can’t
  afford to pay back.
 There is also interest rate risk, if rates rise significantly
  people can get themselves in lots of trouble if they have
  borrowed too much.
 It is important to always consider whether you are in
  any position to accept the chance of losses before you
  invest.
Pre-paying interest
   It is legal to claim a tax deduction on expenses for
    interest as much as 13 months ahead.
   A common strategy that people use toward the end of
    the financial year is to pre-pay interest to a lender.
    This results in bringing forward tax deductions that
    would otherwise be incurred in the next financial year
    (but since the dividends from the investment haven’t
    been received they won’t add to assessable income
    until next year).
   Most lenders that allow you to pre-pay interest also
    give a discount on the interest for doing so, so not
    only do you save tax, you also pay less interest.
Capitalising interest
 Some lenders enable you to “capitalise” the interest,
  which means they just keep adding the interest to the
  account balance owing (up to an approved credit limit).
 The loan balance will keep growing, increasing your tax
  deductions. You can use the cash to either buy more
  assets or to pay off another loan with a higher interest rate
  or a non-deductible personal loan.
 Capitalising interest is sometimes called “double negative
  gearing.”
Tax deductible managed investment
schemes (MISs) in primary production schemes are
  Some investments
  tax deductible. Normally these types of investment
  are in the agriculture or film industries, though there
  are all sorts of other schemes.
 You claim a tax deduction of up to 100% of your initial
  application money, but when the project matures
  you’ll be taxed on 100% of the return.
  Example: Agribusiness
 The most common type of tax deductible investment is tree
  farming (silviculture). There are many crops available
  including eucalyptus hardwood, pine, sandalwood,
  paulownia and a number of other exotic timbers.
 Also popular are horticultural crops ranging from citrus and
  tropical fruits through to olives, almonds, grapes and some
  other crops like wildflowers, ginseng, coffee and truffles.
Hardwood tree farming
The most popular type of agribusiness scheme, and
arguably the least risky, is eucalyptus tree farming.
There are longer term projects (about 20 years)
where the wood is grown for sawlog timber and
veneer, and medium term projects (just over 10
years), where the wood is grown for chipping for the
production of paper.

This sector does in fact receive a high degree of
government support, as it presents a more
environmentally friendly alternative to logging
native forests and creates valuable export revenue
and employment in rural areas.
How a typical blue gum project works
 Claim a 100% tax deduction for planting expenses (about
  $5,000 - $8,000 per hectare is common).
 The blue gums grow for 10 – 12 years, the project manager
  looks after the trees and then arranges the harvest.
  Depending on the up-front payments, there may also be
  deductible ongoing management fees.
 When the wood is harvested, you receive the proceeds as
  fully taxable income.
 Investment characteristics of
 agribusiness
 No liquidity. You usually have to wait more than ten years for a
  return (though some projects are shorter term).
 Moderately high risk: fire, flood, currency movements, price
  movements of the commodity.
 Return data is often hard to find, but a good agribusiness project
  should produce returns at least as high as equities.
 Not really tax efficient if you are on the same or a higher marginal
  tax rate when you get the harvest. Ideally you would want to
  invest in them while you are earning good money and paying tax
  at the top marginal tax rate, but retired in the year of the harvest.
  This is an example of moving income from one tax year to another
  to take advantage of lower marginal tax rates.
 Interest incurred on a loan to buy strategy
“Mortgage accelerator” into an
  agribusiness scheme is usually tax deductible.
 If you have non-deductible debts their after tax
  cost can be nearly twice as much as deductible
  debts, for an investor paying the 48.5% marginal
  tax rate.
 A common strategy is to take out a loan for an
  agribusiness investment and use the tax refund to
  pay off a non-deductible debt. The after tax
  interest bill is basically the same as before except
  now you have an agribusiness investment and
  future cash flow advantages.
  Dodgy schemes and the ATO
 “Tax effective” investments have become notorious in the last few
  years following a widely publicised crackdown by the Australian
  Tax Office (ATO).
 Many schemes were put together by accountants and lawyers
  purely for the tax deductions. Various “creative” accounting tricks
  were employed so “investors” were able to claim tax deductions
  several times larger than the amount actually invested!
 As a profit was made just from the tax dodge, the crop was just a
  sideshow. Far greater effort was put into finding ways to increase
  the tax deductions than to research the commercial viability of the
  crop. Result: too many tea trees were planted, the price of tea tree
  oil fell below harvest and extraction costs, some blue gum
  plantations were made on cheap marginal land where the trees
  didn’t grow well. Many other crops simply failed to meet
  prospectus projections.
 The ATO cracked down on these, and disallowed tax deductions.
  There is now a “product ruling” system where the ATO certify that
  they will allow the tax deduction on approved projects provided
  they comply with the ATO’s conditions.
How to get out of paying the
superannuation contributions surcharge
   High income earners that salary sacrifice a
    significant amount of income to superannuation
    will find that they are paying a significant amount
    of superannuation contributions surcharge.
   By claiming a few tax deductions they may be able
    to reduce their adjusted taxable income to below
    the $99,710 threshold and thus no longer have to
    pay surcharge.
   Common deductions claimed include negative
    gearing strategies and agribusiness.
 When salary packaging a significant amount of money
  into superannuation, high income investors can pay a
  significant amount of super contributions surcharge.
 If your income is not too far above the upper surcharge
  threshold and you are putting a lot of money into
  super, the amount of surcharge you can save by
  claiming a tax deduction can often come close to
  paying for the agribusiness investment!
 For some investors taking maximum advantage of
  salary packaging as well as agribusiness extremely
  high effective rates of return can be achieved due to
  the very small net after tax outlays required after
  factoring in surcharge and other tax savings.
Timing and netting of capital gains
 If you can hold on to your taxable capital gains as long
  as possible, you will obtain a benefit by having that
  money invested in the markets. Effectively an
  unrealised capital gain contains an “interest free loan”
  from the Australian Tax Office.
 The longer you get to hold on to that gain, the longer
  you’ll be able to earn dividends and further growth on
  that money.
 Therefore, methods that delay the realisation of
  capital gains tax can produce significant benefits.
 Netting capital gains
 If you sell an asset at a capital loss, you can only offset that loss
  against a capital gain. Generally, you can’t claim a capital loss
  as a direct tax deduction. Capital loss credits can be carried
  forward as long as is necessary for them to be used up.
 Capital gains and losses are “netted”. Each year you pay capital
  gains tax on the total capital gains minus the total capital
  losses.
 While it is sensible to defer the realisation of capital gains, the
  same can not be said of capital losses. In fact, a capital loss is a
  valuable asset for tax planning purposes and if possible should
  be realised. These losses can then be used to offset any sales
  you intend to make at a profit. By being quick to realise losses
  and slow to take profits you can delay the ultimate paying of
  capital gains tax for a very long time.
 If you still like that particular asset, you could buy it back a
  short time later.
Deductible superannuation
contributions
 Employees can’t claim a tax deduction on their personal
    contributions, they must use salary sacrifice.
   If you are self employed, or “unsupported”, you may be able
    to claim a tax deduction on some or all of your
    superannuation contributions.
   A common post-retirement strategy is for people to
    liquidate their ordinary investment portfolio and claim a
    tax deduction on contributions to superannuation, to
    eliminate their capital gains tax liabilities.
   The same strategy could be employed to reduce the tax
    liability on the harvest from an agribusiness project.
   Note that rules apply specifying who can and can not make
    contributions to superannuation, there are a variety of tests
    of age and employment activity.
    Superannuation co-contributions
 This year a new incentive was introduced to encourage lower
    income taxpayers to make voluntary contributions to their super.
   This scheme is called the “co-contribution”, and involves the
    government matching your contributions up to a maximum of
    $1,500pa.
   The amount of the co-contribution depends on your taxable
    income, and is at a maximum for people with income and
    reportable fringe benefits below $28,000, reducing by 5c in the
    dollar as your income exceeds this, cutting out at $58,000.
   Co-contribution = the lesser of your voluntary contribution and
    $1,500 – 0.05 x ($income&FB - $28,000). If the formula gives rise
    to a number below $20, the tax office will pay $20.
   The obvious beneficiaries would be lower income employees, but
    the main beneficiaries are likely to be part-time working spouses
    and semi-retired people.
   Co-contributions replace the old $100 super contributions rebate.
    Obviously this benefit is a lot more generous than the one it
    replaces.
One possible downside of tax planning
 Before implementing any tax planning strategy, you
  need to consider the costs of doing so. Such costs
  include accounting, legal and advisor fees.
 The benefits of implementing a sophisticated strategy
  may not be worth the bother in terms of time and
  money spent on creating and maintaining the strategy
  unless you have a fairly high income and/or a big
  portfolio. (Especially when creating tax structures like
  companies and trusts.)
 On the other hand, there are a number of simple
  strategies that can be relatively easily and cheaply
  implemented.
 Summary
 There do exist legal and acceptable methods for
  reducing tax, but tax planning should only ever be of
  secondary importance behind wealth/retirement
  planning.
 Some tax planning methods are very powerful, a
  combination of negative gearing, salary packaging and
  agribusiness can reduce the amount of tax paid to very
  low levels, but sometimes just taking the money and
  paying income tax on it is the better long term
  strategy.
 An accountant and a financial planner can assist in
  implementing all of the strategies mentioned here,
  plus many others.
Disclaimer:
The material in this presentation does not represent
a recommendation of any particular security,
strategy or investment product. The author's
opinions are subject to change without notice.
Information contained herein has been obtained
from sources believed to be reliable, but is not
guaranteed. This article is distributed for
educational purposes and should not be considered
investment advice or an offer of any security for sale.
Investors should seek the advice of their own
qualified advisor before investing in any securities.

				
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