​Tax-effective investment ideas

Superannuation

When it comes to tax-friendly investments, your super fund can offer great tax advantages for the savvy investor.

Like salary sacrificing your pre-tax pay. Generally, these contributions are taxed at 15% until you reach your yearly limit, and at 30% for people earning over $250,000. (Given that other investment strategies can be taxed as high as 49%, it can still represent a significant saving.)

What’s more, if your spouse earns less than $13,800 you may also be able to claim a tax offset of up to $540, by making an after-tax contribution to their super.

While you generally can’t access your super until you retire, it’s a great way to make sure you have enough savings later on in life.

Negatively-geared property

This is a popular strategy for those wanting to invest in property while minimising tax. Here’s how it works.

You buy an investment property with the view that your short-term costs (like interest payments and maintenance) will be less than the rental income you earn. These ongoing expenses may entitle you to a tax deduction - which reduces the amount you get taxed on.

Deductions may be used to reduce taxes payable on other income, like salary. The theory is that while this investment ‘costs you money’ in the short term, your property will hopefully continue to increase in value. This will provide you a capital gain in the long term.

Remember, this strategy relies on a strong capital gain for the short-term losses to be a worthwhile investment. You’ll also need to make sure your income and overall cash flow is at a level that will provide you with the money you need to fund the ongoing expenses shortfall.

There are often pretty significant transaction costs involved with buying and selling property (such as Stamp Duty, and real estate fees). You should speak to a registered tax agent to understand the tax implications of this strategy in your circumstances.

Franked securities

Franking credits, also known as imputation credits, allow Australian companies to provide a credit to their shareholders for tax already paid at the company level.

Franking credits can reduce the tax paid on company dividends, or be received as a tax refund, depending on your marginal tax rate. Compared with securities not eligible for franking credits, like international shares, franked securities can help investors reduce the tax they pay. Some strategies purposely target these shares to take advantage of this benefit.

It’s important to consider whether this strategy is right for your individual tax circumstances and financial goals.

Talk to a professional adviser

Not every tax strategy will be right for you. To discuss a tax-effective financial plan that’s based on your circumstances and financial goals, talk with your financial adviser and/or registered tax agent today.