Tax Effective Strategies for Wealth Accumulation

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How to Accumulate Wealth Using Tax Effective Strategies

No one likes paying tax; especially when trying to grow your personal wealth. Personal income tax rates for individuals of up to 45% represent a significant hurdle to wealth accumulation for many Australians. Depending upon your individual circumstances, there are several strategies available to individuals to manage their tax liabilities. The most popular strategies include:

  • effectively structuring your business and personal assets;
  • investing in Early Stage Investment Companies (ESIC);
  • holding tax deductible income protection.

Structuring assets forms part of the tax effective strategies utilised to grow wealth

At Collins Mann, one of our expert advisors work with our partnership of associated professionals including your accountant and lawyer, to guide you through the complex task of deciding where to hold your assets as you build your personal wealth.

Choosing a tax efficient structure is essential to maximising the financial returns you receive from your assets and investments.

Starting early and getting the timing right is the order of the day here because making changes when asset values are high can be an expensive exercise. Generally, the more valuable an asset is, the more costly it will be to restructure that asset down the track.

Establishing an efficient structure, when asset values are low or when markets are depressed, can help to ensure you derive efficient gains when values rise in the future.

Your advisor can advise you whether to hold your investments under a trust structure, where you may be able to access a 50% Capital Gains Tax Discount when you decide to cash out, or stream and share income among multiple beneficiaries, accessing their different tax rates from year to year.

Or perhaps your advisor will tell you that your assets should be held in a company structure, either for asset protection purposes, or to enable reinvestment of returns at a fixed company tax rate.

While not eligible for a Capital Gains Tax discount, a company does benefit from a tax rate that is limited to 30%. This could be worthwhile if your investment is giving you significant returns and income each year.  However, this is something you will need to seek advice about as it may have other implications for your arrangements.

Remember, our goal for you is focused on wealth accumulation so tax effective strategies that grow your personal wealth are given paramount consideration. That’s why it is important to work with professionals who understand how this works and can guide you through the pitfalls.

There is definitely no ‘one size fits all’ strategy, as each structure is relative to your individual situation. Nevertheless, structuring your assets to benefit your circumstances should be one of the first things you consider when thinking through tax effective strategies.

Tax offsets

A tax offset is an amount given to reduce your tax based on allowable costs. Tax offsets are given for a variety of reasons such as low income or business losses.

Low income earners are eligible for a Low-Income Tax Offset, in which the government allows you to offset an amount against your tax, putting more dollars into your pocket for personal living expenses. It is not much but for those whose incomes fall below the threshold, the allowable tax offset could be the difference between having a roof over their head and not.

At the other end of the scale, if you are a high net worth individual with revenue losses in a trust or company, you might be able to take advantage of those losses by structuring your affairs in a particular way. Collins Mann financial advisors will work with your tax advisors to assist you to structure your assets to allow you to offset your losses in a way that reduces your tax liability.

Choosing a tax efficient structure is essential to maximising the financial returns you receive from your assets and investments

Income protection will help pay the bills if you are unable to work

Personal illness or injury can be a major spanner in the works of your established financial plan. If you have no income, no number of tax effective strategies will help.

This is one reason why any advisor worth their license will recommend income protection. It is a safe, smart, and secure move to make early on in your wealth accumulation plan.

Income protection provides you and your family with security and the knowledge that your assets are looked after should the unfortunate event of injury, or illness take place.

Some of the benefits of income protection include:

  • claiming the cost as a tax deduction if the protection is under your own name;
  • it is generally affordable and usually averages to approximately 2% of your total annual income;
  • it is an investment itself: although there are costs involved, it is a necessary safety net, preventing the large-scale loss of income should you succumb to personal illness or injury.

Finding the right income protection policy can be tricky. There are several factors to take into consideration including premiums, the inclusion of pre-existing conditions, the percentage of your income covered, and the waiting period between when the claim is lodged and the first payment is made. Making a decision about the right policy for you is one that should be done in conjunction with your financial advisor.

The world of tax can be a confusing one. Be smart about tax efficiency. We care more about how much you can save after paying tax rather than how little tax you can pay.

Contact the experts at Collins Mann today to find the right tax effective strategies for you and grow your personal wealth for your future.

Financial Services

Our services include:

  • Values-based financial planning.
  • Wealth accumulation strategies.
  • Tax-effective strategies.
  • Risk management.
  • Retirement planning.
  • Estate planning.
  • Divorce financial settlement analysis.

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Consulting your advisors at Collins Mann means that you aren’t gambling your assets on a risky venture, simply to avoid paying tax.

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