Taxation is a critical component of investing. For most investors, reaping the greatest benefit from your investments involves at least some focus on the impact of taxation. Depending on your personal circumstances, this may mean engaging a tax specialist in addition to your financial adviser. While a financial adviser can guide you on the broader strategic elements of your structures and investments, a tax specialist will provide valuable advice on how to maximise the opportunities available to you under relevant rules and regulations.
At a Strategic Level
It’s important to understand your objectives at a broad level. Investment return comes in the form of either capital gains or income and the two are treated differently for tax purposes. Depending on your personal circumstances, it may be beneficial to skew your investment portfolio towards capturing capital gain instead of income; or vice-versa.
Your financial adviser in conjunction with a tax specialist can help you understand the circumstances that would steer these investment decisions such as your level of taxable income, capital losses carried forward from prior years, and the investment structure being used. They will then help you structure a portfolio which targets a mix of income and capital gain which aligns to your investment objectives and considers the impacts of taxation.
Understand Your Opportunities
At a more granular level, there are a number of opportunities to reduce the impact of taxation on your portfolio and range of questions that should be considered.
- Superannuation: Are you maximising the tax benefits of investing within the superannuation environment? Superannuation is typically one of the most tax-effective investment structures available in Australia as investment income is taxed at a maximum of 15% and 10% tax on capital gains where the assets are held for more than 12 months. Contributions and withdrawals from superannuation in retirement are also concessionally taxed.
- Franking Credits: Are you currently investing in financial products that attract franking credits? Should you be? Franking credits can be used to reduce tax paid on income and stop the double taxation of company dividends - when a company pays tax on profits and then distributes those post-tax profits to you as dividends which form taxable income. Depending on your personal tax position, franking credits such as from Australian share investments can make dividends a particularly attractive form of income. In some cases, you may even receive a refund of the franking credits from the Australian Tax Office when they are more than your tax payable.
- Salary Packaging: Have you investigated potential salary packaging options? Also known as salary sacrifice, this option allows you to take advantage of employee benefits in exchange for giving up a part of your salary. When structured properly these have obvious income tax benefits for you as the employee, but you should get appropriate advice before proceeding. There are strict rules regarding what can be legitimately packaged and fringe benefits tax will apply in certain circumstances.
- Investment Debt/Gearing: Are you making the most of potential tax deductions? Understanding which investment expenses are tax deductible and which are not can have a significant impact on taxable income and after-tax performance.
These are just some of the opportunities that may be appropriate for you. There are others (such as different ownership structures) your adviser can take you through.
Get the Right Advice
Taking sensible steps to reduce the amount of tax you pay can make a meaningful difference to your after-tax return and your long-term financial success. Speak to your Morgan Stanley financial adviser for further advice and guidance. Your adviser can help you decide whether you would benefit from specialist tax advice and, if so, put you in contact with a suitable professional.
IMPORTANT INFORMATION
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