Tax Planning with the Context of Investment

Financial savings with a man dropping a coin into a glass jar surrounded by a pile of coins, documents, and a calculator, seeking assistance from small business accountants about his tax planning

Tax Planning for Optimal Wealth Creation in Investments

Tax planning is a key element in the realm of wealth creation. Integration of your tax position with your investment and retirement strategy is critical as there should be a clear focus on the management of actual after-tax returns and maximisation of income which will enable you to divert your income to more productive activities.

Tax planning within the context of investing can involve:

  • Superannuation – maximising the use of superannuation to minimise tax both now and in retirement. All Australian governments have shown a commitment to the superannuation system. Currently, there are a range of significant tax advantages available by contributing to superannuation, making it an excellent wealth creation vehicle. It’s critical to get advice prior to 30 June to maximise your position.
  • Gearing – the use of geared investments can create higher returns and enhanced franking credits to maximise after tax returns. Borrowing to invest, to purchase an investment property or blue-chip shares is another popular wealth creation vehicle. A higher risk option than contributing to superannuation, it can also be more effective in building wealth. Whether you have already done so, or are considering this strategy, you should seek advice prior to 30 June to make sure you have maximised the benefits of this strategy.  We can also take advantage of geared investments, that don’t need you to borrow money, though still give you all the same benefits. Of course, borrowing to invest can also magnify your losses.
  • Investing in shares that offer 100% franked dividends – Investing in Australian blue chips has long been a favourite of investors seeking enhanced income from all our favourite companies. The strategy is also lucrative for wealth accumulators who can take advantage of the franked dividends to minimise income tax, particularly if you have borrowed to do so.
  • Capital Gains Tax (CGT) management – Capital Gains Tax problems can be managed by using superannuation contribution strategies. This is especially relevant for those with balances below $500,000 as they have a second chance to access any unused concessional cap amounts from previous years. If you have disposed of an asset this financial year investing in super using all those unused contributions could see a significantly better tax position and much improved super balance.
  • Small business and capital gains tax exemptions – If you have disposed of business assets, you should seek advice well before 30 June. There are very generous contribution limits available for the business owners who have sold their businesses. This can enable you to grow your super balance more than you think, over and above any of the abovementioned contribution limits.

Should you have any questions in relation to your tax planning in relation to your investments don’t hesitate to contact Chris Tsiolis from S&W Wealth to discuss.

Kreston Stanley Williamson

Author – Chris Tsiolis

*Correct as of 19 April 2022

*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.

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