Be savvy about tax
by Wealth Know How in DIY Investing
Benjamin Franklin was right: "In this world nothing can be said to be certain, except death and taxes.” That’s certainly true in investment, where any investment has tax implications. First of all in Australia, any income you receive from an investment may be added to your income, and taxed at your marginal tax rate, which is the rate of tax that applies to the income range into which your taxable income falls. Australia currently has four marginal tax rates, or five if you count nil as the tax rate on for low incomes below the tax threshold. So if you have interest from cash or bonds, dividends from shares, or rental income from a property, that is added to your assessable income and taxed at your marginal tax rate.
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Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 06 Mar 15
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Benjamin Franklin was right: "In this world nothing can be said to be certain, except death and taxes.” That’s certainly true in investment, where any investment has tax implications. First of all in Australia, any income you receive from an investment may be added to your income, and taxed at your marginal tax rate, which is the rate of tax that applies to the income range into which your taxable income falls. Australia currently has four marginal tax rates, or five if you count nil as the tax rate on for low incomes below the tax threshold. So if you have interest from cash or bonds, dividends from shares, or rental income from a property, that is added to your assessable income and taxed at your marginal tax rate.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
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Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
Then, there’s capital gains tax - CGT, which you pay on capital gains arising from selling - or giving away - any asset other than your home. CGT is not a separate tax – the net capital gain is added to your income and taxed at your marginal income tax rate. CGT can be lessened by holding the asset in question for more than 12 months, in which case a CGT discount is applied which may halve your marginal rate of tax for this capital gains; or in super, the discount is one-third.
Some assets are known as tax-effective, if you end up paying less tax than you would have paid on another investment with the same return and risk. The best example of tax-effectiveness is the effect of fully franked dividends on shares, where shareholders get a personal tax credit linked to the dividend based on the tax already paid by the company, and they can use these ‘franking credits’ to reduce their tax liability. This has a particularly powerful effect in superannuation where tax rates are significantly lower than corporate tax rates.
The property equivalent of franking credits – although they are not as effective – are the tax deductions you get for the depreciation, expenses relating to financing, maintenance and repair, and occupancy of an investment property.
While franking credits and property deductions help you pay less tax – and thus can help your savings grow faster – you should never base an investment decision on the tax benefits alone.