Tax should never be central to any investment decision you make but it still has an important role to play. What that means is, your investments should be tax effective rather than tax driven. Depending on your personal financial circumstances, there are usually ways you can minimise your tax obligations to maximise your investment returns.
Despite the recent winding back of some tax concessions, superannuation is generally considered the most tax effective vehicle for investments for a number of reasons. Firstly, you only pay 15% tax on your superannuation guarantee or salary sacrifice contributions (30% if you earn more than $250,000 a year). That means that for every $1 you contribute, 85c is invested. Secondly, tax on earnings in super is 15% at most but can be less if franking credits are applied. Thirdly, in some instances once you enter pension phase there is no tax on earnings and once you’re over 60, you can withdraw money from your super without paying any tax.
Superannuation itself is not the investment, but it is simply a trust structure which holds the investments. Inside your super you can have different investments like shares and property.
Whether you decide to use super as an investment tool or invest directly into things like property, shares or investment bonds, you need to seek professional advice to ensure you are using the right entity when investing.
Information provided in this article is general in nature. In preparing information BMO Accountants has not taken into account any particular person’s objectives, financial situation or needs. Readers should, before acting on this information, consider the appropriateness of this information having regard to their objectives, financial situation or needs. We recommend obtaining financial advice specific to your situation before making any financial decisions or investments.