High Income Earner Tax Minimisation Strategies? Property? Other?

someguycalledpaul on 28/06/2018 - 21:19
Last edited 28/06/2018 - 22:02

Hi OzB,

I'm in a very fortunate position to be well remunerated for the work I do. Focusing on future growth opportunities at work (Regular PAYG role) is one way for me to grow my net wealth… but at the other end of the spectrum tax minimisation strategies may drive incremental benefit?

Current Situation:

  • Paying 100K+ In tax as an individual per year, my tax deductions last year were $4K.
  • Mortgage ~5K / mo repayment
  • No Investment Properties, no investments outside of super.
  • Household ATI - $370K+

Questions

  • Hoping to find someone in a similar situation who can explain what steps they have taken to minimise tax, and provide a view of the additional (post tax $) outlay requirements, and the associated risk with the strategies selected?

note:

  • I understand I should seek financial advise, but considering I've had my share of 'bad' financial advice and seen my family get some shocking advice I'm looking to the community to get a perspective.
  • I'm not here to 'boast'. If this is how you read this post apologies as this wasnt my intent.
Financial

Comments

  • dbui8743 on 28/06/2018 - 21:30
    +20

    I will start with the obligatory that everyone seems to like currently.

    With all that money, what did your financial advisor say when you asked him or her?
    Lol

    • [Deactivated] on 28/06/2018 - 21:59
      +76

      Most Financial advisors are for stupid people. Would you really trust your net worth with someone who has a tafe qualification? Get a good accountant.

  • niknah on 28/06/2018 - 21:40
    +72

    Put in the max $25k into super.
    Take out investment loans(property, shares, etc.), pay interest and deduct it.

    Go to whirlpool.net.au, there's a few threads there where people boast about their wealth. This is ozbargain, home of the cheap arses.

    • Smulder on 28/06/2018 - 23:12
      +24

      If the OP is earning over $263,000, which it appears he is, then he will already reach his $25k concessional super contribution cap just from the 9.5% super guarantee paid by his employer.

      Contributing an extra $25k over and above this will not result in a tax saving, in fact, quite the opposite.

      • kingmw on 28/06/2018 - 23:19
        +8

        Actually there is a max limit that employers are allowed to contribute to ensure that you don't exceed your $25k cap.

        https://www.superguide.com.au/boost-your-superannuation/uppe…

        • Smulder on 28/06/2018 - 23:23
          +2

          I stand corrected. Still, the majority of his super cap is used up by the super guarantee. The top-up remaining to reach $25k will only make a minor dent in his tax liability.

        • geech on 28/06/2018 - 23:56
          +3

          An employer is allowed to contribute more, they’re just not required to. I’ve worked for employers that continued paying super on salary exceeding the SG upper thresholds

        • kingmw on 29/06/2018 - 19:31
          +1

          @geech: They may as well just give you the money straight up. Since if you go over the 25k limit, you get fined by ATO and have to pay your marginal tax rate on it.

      • DonWilson on 01/07/2018 - 19:00

        You still get the benefit from paying reduced tax on the dividends/distributions within the super (capped at 15%, I think).

        So while OP'd get no immediate benefit this tax year over 30 years it would be a considerable benefit.

    • onevstheworld on 29/06/2018 - 00:10
      +4

      Be mindful, his income is probably above $250,000. That's where Div 293 kicks in. That reduces the tax benefits of contributing to super (contributions taxed at 30% rather than 15%).
      https://www.ato.gov.au/individuals/super/in-detail/withdrawi…

      Another good reason to get advice from an accountant beforehand.

    • ozzpete on 02/07/2018 - 11:00
      +1

      This is ozbargain, home of the cheap arses.

      Many (possibly most) self made wealthy people, have done so by working hard, saving harder, and by being cheap arses allowing the savings and assets to acrue.

    • Will Mcdonald on 04/07/2018 - 09:17

      lol so true cheap arses and trolls

  • AusGP on 28/06/2018 - 21:59
    +5

    Really you should be getting your accountant to provide advice…
    But basically super is one easy way and then property (although I don't rate the property market atm) and then look into a trust structure to hold business income or if you are purely PAYG to put buy investments via a trust structure

  • smuggler on 28/06/2018 - 21:59
    +8

    waow. That's a lot of magic beans.

    • dylan345 on 02/07/2018 - 23:28

      give me the beans

  • whooah1979 on 28/06/2018 - 22:02
    +19

    Paying 100K+ In tax

    Why are asking strangers online for tax avoidance advice when you pay more tax than many average household income? Contact an accountant and pay for proper tax avoidance advice.

    • someguycalledpaul on 28/06/2018 - 22:04
      +21

      because many 'strangers' provide good advice?

      • whooah1979 on 28/06/2018 - 22:07
        +2

        Hands up for anyone here that has a tax liability of >$100k this fiscal?

        • bobbified on 28/06/2018 - 22:11
          +57

          both my hands are firmly down!

        • smuggler on 28/06/2018 - 22:18
          -3

          If I combine with my gf, then sure. ;)

        • bobbified on 01/07/2018 - 12:31
          +12

          @smuggler:

          Going by your username, do you even pay tax? :p

        • whooah1979 on 01/07/2018 - 13:24

          @bobbified:

          everyone pays tax.

        • stumo on 01/07/2018 - 14:11
          +1

          Is that before or after the tax minimisation advice I have implemented?

        • bobbified on 01/07/2018 - 21:52

          @whooah1979:
          I didn't neg ya, but I was joking about his username lol

        • bigbadboogieman on 03/07/2018 - 10:55

          Hands firmly touching the ground… along with the rest of my body.

      • Scrooge McDuck on 29/06/2018 - 19:45
        +47

        Say your current taxable income is $300,000. Your income tax bill (sans other levies) would be $108,232 so you'd keep $191,768.

        You could pay me $150,000 for managing your tax affairs (I'm not cheap), which is fully tax deductible. So then your taxable income would be $150,000, you'd pay $43,132 and keep $106,868. Now I know what you're thinking, "Why on Earth would I do that? I'd take home $84,900 less!" Well here's the kicker, I'm offering $100,000 cash back (discretely paid in $100 banknotes), so you'll be $15,100 better off!

        Sound good? Send me a PM!

        • hashtagbargain on 01/07/2018 - 01:16
          +1

          Now this is what you call a plan!

        • [Deactivated] on 01/07/2018 - 15:49
          +1

          How are you going to avoid your tax?

        • Scrooge McDuck on 01/07/2018 - 17:11
          +8

          @boohooimissout:

          No comment.

        • nikey2k27 on 01/07/2018 - 18:49

          in few Scrooge McDuck behind bars ozbargain on inside

        • abb on 03/07/2018 - 09:15

          @boohooimissout: Scrooge could just declare the $50k as income, and pay tax on it. Even if it pushes him into the top tax bracket he walks away with $25k for 30 seconds effort…

        • bigbadboogieman on 03/07/2018 - 10:58

          @Scrooge McDuck: only accepts cash outside of Australia as a non-resident for tax purposes..:)

        • gezza90 on 03/07/2018 - 19:02

          Or he could just pay multiple "part time" staff $18,200 and they give him back most of that money and keep some (say $1000 per person) money as a means of taking on that risk. It's a win win

      • ThithLord on 02/07/2018 - 07:42

        OzBargainers are a truly jealous bunch.

    • bobbified on 28/06/2018 - 22:13
      +7

      Stangers might have some borderline illegal advice that the "professionals" may not share.

    • MrFrugalSpend on 28/06/2018 - 22:27
      -5

      Tax "minimization" advice, tax "avoidance" is illegal

      • whooah1979 on 28/06/2018 - 22:45
        +3

        there is a distinction between tax minimisation, avoidance and evasion which may not be easy to understand unless one are interest in tax laws.
        https://law.unimelb.edu.au/__data/assets/pdf_file/0017/20610…
        https://www.uts.edu.au/about/uts-business-school/news/explai…

      • Nick939 on 30/06/2018 - 07:33
        +2

        Actually in Australia, tax avoidance is very legal. Tax evasion is the illegal one.

        • josho9 on 01/07/2018 - 12:31
          +1

          Nope, there's a general rule which cancels tax benefits from avoidance.

      • burningrage on 30/06/2018 - 22:58
        +1

        Spoken by Adam Bandt, Member for Melbourne.

        Tax Avoidance is legal indeed. Evasion is not.

        • whooah1979 on 01/07/2018 - 10:37
          -1

          give them enough time and they'll find a way to make tax minimisation sound illegal.

      • Mango Madness on 01/07/2018 - 20:29
        +1

        MrFrugalSmith is correct. Tax Avoidance is illegal in Australia.

        This article is for promoters (accountants who advice on tax avoidance).

        ATO audits are based on intent approach. So if you obtain advice from an agent and it is determined they have been using these schemes with many clients (which they typically do), the ATO is entitled to penalise both the agent and the client.

        Keep in mind. While agents provide advice, and you may be able to sue them… the ATO pursues and penalises the client, as the client signs the tax application.

      • R4 on 02/07/2018 - 10:16
        -3

        No it's not

    • dust on 01/07/2018 - 10:19

      The financial advice/wealth management business don't have a very good reputation in Australia at the moment!

  • jug123 on 28/06/2018 - 22:04
    +2

    Split investments between property & shares. Get a margin loan & leverage & do the same with an investment property or 2

  • amazonaddict on 28/06/2018 - 22:20
    +5

    You increased your pay by $150K+ in 2 years? Damn… You must be good at what you are doing.. I am in no place to advise you.

    • dbui8743 on 28/06/2018 - 22:29

      I was looking at the username and it looked so familiar, wondering where I saw this name before.

      Then your post made me check his history and I remember I was so impressed by his earning back then.

    • kingmw on 28/06/2018 - 23:15

      How did you work that one out? Even at his last reported pay level he was paying >80k tax per year.

      • creamandpaper on 02/07/2018 - 19:08

        OP would have to be in the highest tax bracket of 45c per dollar over 180k. If he was paying 80k tax 2 years ago and is now paying 150k tax he increased his tax obligation by 70k.

        70k / 0.45 = 155k.

        *Assuming 80k and 150k tax payments are reasonably correct

  • CyberMurning on 28/06/2018 - 22:56

    So jealous.

  • cauilfield on 28/06/2018 - 23:24
    +5

    What do you do for living? if it's a consulting role (IT / Engineering / other) you may look into putting up a family trust with a corporate trustee then driving all income to a trust, then making distributions to trust beneficiaries who may include your immediate family and other family members.

    • Telcius on 29/06/2018 - 16:17
      +1

      Would need to carefully consider PSI rules…

    • Coatesy on 30/06/2018 - 00:55
      +1

      I second this, you can also use bucket companies as beneficiaries to essentially never pay a higher tax rate than the corporate tax rate.

      If you can't put your income through a trust. I would suggest at a minimum investing through a trust structure.

      Also, with your income, go into one of the accounting firms and they'll sort you out with the best possible way to minimise your tax.

      • onevstheworld on 30/06/2018 - 21:17
        +3

        OP has said he's a PAYG so I don't think he can divert income to a trust and bucket company. Investing via a trust is an option through… although if his partner's tax rate is lower than the company rate, it's more straightforward having it in that name.

        • ely on 02/07/2018 - 14:11
          +1

          That's how I do it; wife doesn't work, so in the absence of a fair tax system that provides a family tax threshold rather than individual ones the best you can do is have all investments in your partner's name.

    • MementoMori on 02/07/2018 - 12:03

      This strategy has been known about and illegal for a long time.

      Howard got rid of it in the 90's

    • R4 on 03/07/2018 - 09:48

      I reckon you'd get caught by the ATO's 'sham contracting' mumbo jumbo in this scenario

  • kingmw on 28/06/2018 - 23:29
    +4

    I would suggest maxing out your and your wife's concessional super contribution - $25k each and paying off your mortgage or into the offset (non-deductible debt) as quickly as possible.

    Tax minimisation strategies require more effort and risks but remember not to lose money for the sake of minimising your tax!! Whatever you invest in should be making you money in the long term otherwise you might as well just keep it in the bank. Also diversification is important, so if you have 2 investment properties then considered buying shares/ETF to spread your risk out.

  • easternculture on 29/06/2018 - 05:15
    +18

    I've got a few up my sleeve

    • salary package your mortgage if employer has the facility

    • salary package a novated car lease

    • get private health insurance if you don't have already to avoid the Medicare surcharge for not having PHI

    • my favorite is booking your annual holiday/s as 1 week conferences, with 5 star hotels and business class flights

    • look into educational cruises too for a holiday

    • Also look into self managed Superfund to invest your super (I tripled my super in 3 years)

    • Operate A profitable business at a loss, i know a 100% legal way to do it

    • Gandalf the Thrifty on 29/06/2018 - 08:49
      +3

      salary package your mortgage if employer has the facility

      Pretty sure that only works if work at a hospital or for charity organisations.

      • burningrage on 30/06/2018 - 23:03

        Most effective in PBI. Charitable (not sure about hospital) does have NFP benefit but that is bugger all and you get whacked with 100% RFB (used to be 50%) which ultimately "inflates" your salary and made you ineligible or losing lots of benefit eg: Child Care Subsidy or PHI rebate.

        This is a trap.

    • CheapSticks on 29/06/2018 - 10:52

      I suppose number of above you can do if you run a business.

      Never heard of salary packaging a mortgage - what wud be the rationale for being able to sacrifice a mortgage???

      • easternculture on 29/06/2018 - 11:35

        You can salary package ~ 18k per year and at 30% tax your savings are around 3k per year.

        I currently salary package my rent. You can basically salary package anything with an ongoing payment such as car loan, home loan, rent, credit card payments etc.

        I suppose number of above you can do if you run a business.

        I do all the above except novated lease and work a government job 😂

        • tik tok on 02/07/2018 - 08:43

          Say I have a guaranteed credit card payment of at least 2k a month. How do I salary package this ? Can you please tell me the steps for this ?

      • onevstheworld on 30/06/2018 - 21:40

        I know in NSW (and probably other states), public hospital staff can salary sacrifice certain expenses up to a set limit… what expense you use is flexible (rent, mortgage, credit card bills, school fees).

        There's also a meal entertainment portion that can be salary sacrificed (I.e. eating out). There's a limit to that too.

    • Spending2Much on 29/06/2018 - 18:01
      +5

      I'd be interested to know about running a profitable business at a loss.
      I work a (shift work) job that gives me lots of time off/time at home.
      I want to make use of my out of work time…..

    • Drifta on 30/06/2018 - 21:23

      Please do share these buisness ideas

    • SeVeN11 on 01/07/2018 - 10:17
      +1

      The 'running profitable business at a loss' doesn't sound like it is in the spirit of the tax code. If big business did this, ie tech companies, then it would Rob the country of tax revenues.

      Even the holiday and cruise are border line.

      I'm sure people do this regardless….

      Just saying.

      • BestofOZB on 01/07/2018 - 10:42
        +1

        QANTAS, Virgin? Ring a bell?

      • creamandpaper on 02/07/2018 - 19:11
        +1

        Aren't lots of the billion dollar businesses already paying very little tax anyway (Apple, Google etc)

      • abb on 03/07/2018 - 09:19

        Even the holiday and cruise are border line.

        the word you are looking for is "fraudulent"

    • horsome on 01/07/2018 - 12:28
      +5

      This is the ultimate “My mate at the pub told me..” tax guide.

    • Bennymc on 02/07/2018 - 15:03

      Please elaborate "Operate A profitable business at a loss, i know a 100% legal way to do it" @easternculture

  • Cheap Steve on 29/06/2018 - 06:59
    +13

    Ask your employer to pay you in Bitcoin. Then you can operate in the dark web and pay no tax.

    • Mango Madness on 02/07/2018 - 10:50
      +1

      I believe you're joking.

      For those who considering this, the ATO requires you to keep transaction documents. So you'd need to evidence how you acquired your Bitcoins to begin with.

  • [Deactivated] on 29/06/2018 - 07:48
    +5

    Charity.

    • [Deactivated] on 29/06/2018 - 09:32
      +15

      No wonder she's perpetually booked out.

    • Charity on 01/07/2018 - 22:10
      +2

      Good idea :D

  • [Deactivated] on 29/06/2018 - 09:34

    Omg. This government gives handouts to make the rich richer.

    Think about the hard working strayans that are helping keep the country running. Should be taxed more.

    Just kidding (although I'm sure some actually align themselves to that perspective).

    As others mentioned, this be a bad place for financial vice. Find yeself a financial planarrr.

  • JIMB0 on 29/06/2018 - 09:46
    +37

    Easiest way to minimize tax is to earn less. Get it under $20k and you'll pay nothing.

  • Ughhh on 29/06/2018 - 10:25
    +9

    This is like me asking a homeless person how to get rich.

  • tsunamisurfer on 29/06/2018 - 11:26
    +3

    OP I'm so sorry you have to pay so much tax, being PAYG and in such a high income bracket the Australian government trats you like a cash cow. So many concessions open to others are closed to you.

    Obviously, you ain't starvin'…but that doesn't mean its right that you should shoulder that much responsibility of taxation.

  • Zachary on 29/06/2018 - 13:36
    +2

    fark, 100k a year just in tax, which is bad yes but the amount of income to get taxed that amount - im so jelly….

    • bradenpd on 30/06/2018 - 18:08

      Is bad? Do you know what tax is used for?

      • bobbified on 01/07/2018 - 12:12

        Is bad?

        You'll find out when you're the one paying that much.

        • bradenpd on 01/07/2018 - 14:25
          +4

          I pay a fair bit of tax, not quite $100k but not far off it, and I'm happy to.

        • bobbified on 01/07/2018 - 14:52
          +2

          @bradenpd:
          You must be one of the few people I know who's happy to pay tax.

          I pay about half of that and Im already not happy.

          I want a weekend job, but the way it's charged gives me no incentive to work any more.

        • bradenpd on 01/07/2018 - 21:03
          +2

          @bobbified: Perhaps the people you know don't realise how important it is and what it pays for.

          How has tax changed to disincentivise working in the weekend?

        • bobbified on 01/07/2018 - 22:04
          +1

          @bradenpd:
          Everyone knows what tax is for. It's the way it's spent and the amount of wastage there is that we have a problem with.

          How has tax changed to disincentivise working in the weekend?

          I've been wanting to take a weekend retail job to kill time and make some extra money, but my marginal tax rate means that I would be paying about half of the minimum retail wage on tax. Doesn't leave much incentive to work, does it? I honestly can work cash in hand for more than that!

        • ely on 02/07/2018 - 14:16
          +2

          @bobbified: I pay well over half of that; I wouldn't mind it if it was fair, but others earn more and pay less and that's what I have a problem with.

        • bobbified on 02/07/2018 - 14:22
          +1

          @ely:

          Time to make your money work better for you!

          I sometimes wonder what proportion of taxpayers are Single Income, No Kids (SINKs) in relation to other groups. I'm guessing it must be quite small since, come election time, there are rarely any tax benefits targeted at this group.

          Which reminds me - I should file my Tax Return this year as a couple to avoid the Medicare Levy Surcharge (from cancelling the useless private health cover that I had)!

        • ely on 02/07/2018 - 14:34
          +2

          @bobbified: I'm not, I'm single income + wife + child. I'd be like scrooge mcduck in his giant pool of money if I had no wife and kid, at least finance wise :D Happy enough to drop the wife, but I'd miss the kid a bit too much.

          I haven't noticed much in the way of tax incentives targeted my way as a parent either; the one that I think they should do is a family tax threshold, as it's really a single financial unit and it's insane that my income, which is split between two adults, is taxed as if it was the income for one adult. I ran the numbers and we'd be financially better off if we separated, in spite of whoever moves out having to pay rent, because of the benefits my wife would then be receiving but I'm currently saving the government from having to pay. They love to have their cake and eat it, with lots of things based on family income (e.g. unable to receive many benefits due to family income, not individual income, being too high), but not basing income tax on family income.

        • bobbified on 02/07/2018 - 14:45
          +1

          @ely:

          Happy enough to drop the wife, but I'd miss the kid a bit too much.

          LOL - this cracked me up! I know a few guys who would be happy to do that! haha

          Maybe I'm mistaken about the additional benefits (it doesn't apply to myself and I've never looked into it too much), but there's a number of differing tax benefits for families with young children, isn't there? There's also the medicare levy surcharge combined income threshold. They;re the couple that I know about. There could be more that I don't know of?

        • ely on 02/07/2018 - 18:21

          @bobbified: If any parent earns over 100k there's no family tax benefit for you at all, and that's the big one. Again, getting screwed based on individual income not combined (although there are also some combined things that apply; didn't look carefully, I'm already ruled out).

          Parental leave is another big one… But my wife wasn't working, so nothing there for us. I did get two weeks of "dad leave", but it's paid at minimum wage and you can't be paid by your employer at the same time so it's hardly generous.

          Medicare Levy Surcharge is based on a combined threshold, true, but that's how it should be across the board. It should just be that there's a family income tax rate that is 2x all the individual rates, and that all thresholds in other areas apply that same rules, rather than the inconsistent mishmash on a policy by policy basis that we currently have.

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