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

        • SeVeN11 on 02/07/2018 - 19:53

          funny people worry about the downside in stock prices because there is an active market which provides price.

          I'm pretty sure a lot of people are going to get paper loss from property (definitely in WA already) and most probably in other states soon. i.e. they will still be paying interest on their home loans and their wealth has decline.

          Funnier thing is home owners are in the same situation, their paper networth drops, and they are still paying mortgage (rent) at same rate.

          People need to worry less about short term price movement if they want to invest for the future. You might get there earlier if the short term price movement happens… but that's all luck.

        • abb on 03/07/2018 - 09:36

          They're talking about a loan secured against the house, not a margin loan.

        • chumlee on 03/07/2018 - 10:52

          @abb: either way still paying interest if shares go down in value or sideways, just to get a tax benefit.

  • fchis on 01/07/2018 - 16:10
    +1

    Perhaps you can ask your boss for an advise? There are few high paying jobs like yours to name a few, data scientists, doctors, CFAs , actuaries and etc…

  • ribze1 on 01/07/2018 - 16:17
    +1

    Margin loan, gear into Shares and ETFs with a high dividend yield (tax shaving).

    Build a portfolio, fix and pre-pay your interest (tax saving).

  • ihbh on 01/07/2018 - 16:27
    +1

    Convert income tax into deferred capital gains tax, e.g. through use of leverage. However, this involves some additional risk.

    Many people pay that level of tax and more. Many just pay it, because if it was easy to reduce it, then they would. Have you considered taking a career break, unpaid leave? This will reduce your income and income tax payable and allow you to recharge the batteries.

    Be wary of schemes - especially the agricultural ones. They can be reversed by tax rulings in a blink of an eye.

    Don't be tempted by hobby farms. I see too many people spend a fortune doing them up and driving 2+ hours each way each weekend to make use of the money they've invested in the farm. It gets monotonous after a while.

  • weee on 01/07/2018 - 18:06
    -3

    I'm in no position to provide any financial advise, just in the spirit of OZBargain that I'm sad to see OZB slowly turning into another Whirlpool, maybe the medium income on Whirlpool is now passing $250k? SAD!!

  • frostman on 01/07/2018 - 20:15

    Folks I still don't get the maximum tax contribution.

    So *Mark earns 100K and gets $9,500 in Super from his employer

    Q1: So are you saying he can only do a Salary Sacrificed additional contribution of $15,500 (which will be taxed at 15%?) to reach $25,000?

    Q2: If the above is done, does that mean Mark's Taxable income is now assessed at $84,500? (100K - 15,500)

    • lukelegend on 01/07/2018 - 22:05

      From what i understand is that you can put 25k into super without being penalized. you if you already have 9500 in super you can add 15,500 extra from your pretax earnings to make a total of 25k. you don't pay tax on the $15,500 as its pre tax, you pay 15% when you retire and tax it out. yes you are correct, the taxable income is now 84,500.

      • kingmw on 01/07/2018 - 22:18

        Not quite.

        Salary sacrificed/Employer paid - taxed at 15% by the super fund. Taxed on exit except in pension phase.
        Self contribution (Post tax) + Notice of intent to claim - taxed at 15% (at a later date), but you will get to claim the entire contribution in your tax return. Taxed on exit except in pension phase.
        Self contribution (Post tax) - No tax on exit.

        Earnings still taxed at 15%, CGT at 10% unless in pension phase.

    • kingmw on 01/07/2018 - 22:11

      I think you mean maximum concessional super contribution.

      Q1) Rules changed for last financial year (2017-18) and the government allowed PAYG employees to either salary sacrifice through their employer or directly to their fund (as long as they fill this form and send to their super before they submitted their tax return).
      https://www.ato.gov.au/uploadedFiles/Content/SPR/downloads/n…

      Q2) Yes and therefore you would save tax based on your marginal tax rate less 15%. However the money does get locked into your superannuation.

      Also new rule is that you can carry over any unused amount of your concessional contributions cap for up to 5 years. So you can always top up later.
      https://www.ato.gov.au/Individuals/Super/Super-changes/Chang…

      • frostman on 02/07/2018 - 08:45

        Yes thanks, I meant Concessional Super Contributions (CSC)

        So we ascertained that they enter the super fund before tax, however I didn't understand this part on the ATO site:

        • Once the concessional contributions are in your super fund, they are taxed at the 15% rate.*

        Is this to withdraw them at 65 years old and prior to retirement?

        • kingmw on 02/07/2018 - 16:36

          On entry - taxed 15% (or 30% if div 293)
          Earnings taxed at 15% (regardless of your individual tax level)

  • OzzyOzbourne on 01/07/2018 - 22:31

    When you earn a lot, you need to pay as little back into the system as possible, whilst maximising the benefits you can clsim. It's the Ozzie way.

  • congo on 02/07/2018 - 01:24
    +4

    Don't worry about tax. Focus on making more money. Since your income is high, you can afford to take more risk.
    If you make a loss, learn from the experience.
    Invest in:
    1. Property (have 10+, why not?)
    2. Shares ($Millions)
    3. Start a business (use IT to automate as much as possible)

  • alo1234 on 02/07/2018 - 12:53
    +3

    Nice try ATO!

  • chumlee on 02/07/2018 - 15:11
    +2

    Donate to charity

  • end user on 02/07/2018 - 15:21

    Invest in Eneloops.

  • vroomkroom on 02/07/2018 - 15:42
    +3

    Hello Doctor? In my views paying tax is not a bad thing but you need to set yourself up for comfortable financial independence.
    My 2 cents

    Pay off your PPOR
    Buy one investment property with a good deposit and then let the rent pay off the mortgage over time.
    Invest in index-tracking funds like Vanguard
    Basically, enjoy life rather than creating complex trust, etc.. and spend X amount of time managing that.

  • Raheen on 02/07/2018 - 20:25

    If you borrowed and bought shares a lot of them ensuring the shares are non income paying (capital growth only) then just kept doing that then once you are sick of your job relocate overseas meeting all the ATO tests to show you are a non resident for tax, relocate to a country that is non cgt or some dodgy third world country where they are either corrupt or never would find out anyway, stay there for a good while enjoy life and sell it all.. return to Australia resume working

  • Raheen on 02/07/2018 - 20:32

    PAYG has very little ways out.. speak to your employer if they pay you 300+ k a year I’m guessing you are hard to replace so why not setup a company and work for your employer under that structure and profit shift to an offshore company you also own, the offshore makes all the income but retains it all… no dividend is paid to you then one day relocate for a year to a friendly taxing country with nice beaches and pay yourself a massive dividend. Stay here and the government has it covered every which way… payg Ditto. Refuse to play by the rules and be raped

    • peterpeterpumpkin on 03/07/2018 - 09:48

      This is true but after all the local media attention on the likes of Microsoft and Bupa (let alone the Panama Papers) you'd imagine a crackdown eventually.

      One thing I've noticed is that people on OzBargain have no qualms in minimising tax using loopholes within the law but will come down hard on someone breaking the terms of a foreign corporation's "free for personal use" licence, for example. I don't have a strong opinion either way (due to apathy), but it's intriguing how people equate law with morality ("if stoning female adulterers is legal then it must be okay").

  • Lysander on 02/07/2018 - 22:11
    -6

    You get paid well but want to get valuable advice for free. Will you remunerate us as well for our work (answering questions saving you lots of money)?

  • Trying2SaveABuck on 03/07/2018 - 07:59

    Give some to charity

  • bigbadboogieman on 03/07/2018 - 11:03
    +1

    Good that people are sharing their great ideas. I am sure big brother at the ATO would be loving this thread to identify which legal holes to plug.

    • h4zey on 03/07/2018 - 11:08

      yeah they are not plugging any obvious hole any time soon as they also need it with the amount they are making..

    • kingmw on 03/07/2018 - 21:14

      ATO don't make the laws/rules, politicians in the government do.

  • curryblender on 03/07/2018 - 15:27

    I can relate you here.

    I have done investments in properties. 1 in a farming land of about 42 acres. Which is going to be retirement later down the track.

  • kortina on 03/07/2018 - 21:21
    +1

    I noticed that the household income is high… but not high enough for your partner to hit the $25k in super.

    Ensure that you have your partner contribute the extra into super.

    If you are planning on having kids, ensure you pay the $25k in super for the year that your partner is off work too.

    Use your income to lower your risk!
    1) Pay off your mortgage to sub $300k (incase your good job isn't there forever)
    2) Save $150k, use it to purchase %20 of an investment property (easy to get a loan, no lenders mortgage insurance)
    repeat step 2 with additional property.

    Sure this isn't a tax minimization scheme, but it is a low risk wealth generation model.

  • asrey1975 on 03/07/2018 - 23:59
    +2

    My last trip to financial adviser, they tried to sell my lots of insurance. LOL good advice…wait, I'm paying for the bank to sell me insurance, ok, sounds great, where do I sign! LOL There was more sales and less financial planning involved in my meeting with them…need I say more. Thankyou CBA, I chose to ignore the advice :) Come to think of it, same runaround with ANZ too…and my accountant, dont get me started. They cant add two numbers together to save themselves. For this I pay $4000 per year…oh why.

    Advice :
    The most important thing I can say here is pay off all debts first. The only exception would be your mortgage. Any amount you can draw down on can be used for investments, but make sure you dont "put your eggs in one basket" and try not to pick investments which all go up and down at the same time eg: you buy Apple and Google shares (stocks) vs you buy an ASX index fund (stocks) and property unit trust (Property).

    1) learn how to invest in a market your interested in, stocks, property, FX, CFD, collectables (cars?) anything really. Tax lets you claim deductions for any investor information and education you put yourself through, check with your accountant/tax agent. If you have investments that have potential for gain/loss within a FY, you may need to pay capital gains tax or claim a deduction for a loss. Again, discuss with your tax agent/accountant.

    2) If at or near the top of your income potential in your line of work, you know the next step is to start a business to grow your income potential, perhaps you've already thought of this. Come up with a plan to transition to a business where you call the shots. You may end up paying more tax, but hey your income will potentially be a lot more as well.

    3) Don't forget important stuff like wills and insurance that is relevant to your situation. Recommend an insurance broker rather than your bank, they are not very good at this from my experience & going by the royal commission news.

    4) do you have a family trust? look into that with your family/parents - may be worth having if you get off PAYG and start a business.

    5) also re: annual super lump sumps, there is a "Bring Forward" rule in effect from this year which means you can bring up to 3x$100k forward as a one off prepayment/lump sum you can drop into your super. Good if you have a bit of cash handy, if not maybe save up extra and drop it in, speak to your tax accountant on this, but it might be handy to put the most into your super if you believe in it (super).

  • Trying2SaveABuck on 04/07/2018 - 09:07

    When i 1st read this post i honestly thought it you were trolling

    If you are making that much money you should be giving poor bums like us advice… i earn less money then you pay in tax! I'd say there are some super high income earns on this website the majority of us would be poor bums compared to the amount of money you are on.

    Honestly i'd say >97% of the community of Ozbargin are in no position to give you advice. maybe i should just speak for myself

    Good on you for being in the position you are in but dead set you need to talk to someone who is a professional or has experience dealing with money on that level im sure you have co workers on similar cash what ever paradise these people live (i just picture super models, sports cards and expensive whiskey….go ask them because they would be able to give insight

  • The Gent on 04/07/2018 - 09:58
    -1

    Just…pay your fair share like everyone else?

    • engineeringprof on 05/07/2018 - 16:40

      lol Are you paying 100k in tax?

      • The Gent on 05/07/2018 - 18:32
        -1

        No, I pay my fair share; I don't even make 100k.

        My maths sucks, but I'd say OP would be somewhere around the $1 million per annum mark…if I was making that, yes I would expect to pay $100k a year.

        • AusGP on 05/07/2018 - 18:40

          Your math isn't very good - If the OP is saying there aren't many deductions then 1 mil income is more like tax of 423k.

        • onevstheworld on 05/07/2018 - 22:25
          +1

          10% tax rate!
          Where can I sign up for that? :D

        • Zachary on 06/07/2018 - 00:31

          @onevstheworld: I want to pay no tax, how to do???

        • The Gent on 06/07/2018 - 08:20
          -1

          @RJW: I mean…I said that. Plus, I didn't Google the exact answer like you did, pretending you just know it off-hand.

          The actual income according to the calculator would be more like $300k. You're right - he's doing it rough…

        • The Gent on 06/07/2018 - 08:20
          -1

          @onevstheworld: Earn less.

        • AusGP on 06/07/2018 - 08:35

          @The Gent:

          I was correcting for the record because you were so wildly wrong. Unfortunately there will be people who would believe you thinking a guy on 1 mil will only pay 100k tax. Thus the cycle of politics of envy goes around and around…

        • onevstheworld on 06/07/2018 - 08:49

          @The Gent:

          Awww. But you said I could earn a mil and pay 100k tax :*(

        • The Gent on 06/07/2018 - 09:45
          -1

          @RJW: I'm not jealous of someone earning more than me - that would be a petty way to live; I disagree with the sentiment that one should try to avoid paying their fair share of tax. I'm sorry this is an unpopular opinion.

        • The Gent on 06/07/2018 - 09:46

          @onevstheworld: No, I was mistaken.

        • someguycalledpaul on 07/07/2018 - 18:02
          -1

          @The Gent:

          Your comments in this thread add no value.

        • The Gent on 08/07/2018 - 00:40

          @someguycalledpaul: I respect your opinion, though it is incorrect D:

  • totalgadget on 06/07/2018 - 12:33
    +1

    Initially I too thought this is a troll post , but there is lot of good information provided by some of members which is quite useful.

    I was thinking if you donate a good amount which will reduce your taxable income without impacting your net income to a charity organisation (small-medium) and bargain for a seat in the board or an important member in decision making of key aspects. Is this possible?

    You may not gain money, but you might gain fame in your social circle.

    • Dont Care on 08/07/2018 - 01:46

      No that is not possible. What kind of reality is that?

  • hawkeye on 11/07/2018 - 18:41

    Tax payable on $996000.00 (Remember 4K deductions) The estimated tax on your taxable income is $421,432.00

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