PAR (ASX) The ATO Audit the Country Club

Originally posted by poolboy: ↑

Legally reducing your tax is a different proposition for everyone as a lot of variables can impact the outcome. Some of these include, Age to Retirement, Marital Status and Earning status (ie who gets paid the most), age and number of children, how much you expect to earn from your investments and timeframe. Too often people ignore proper tax planning only to pay a visit to the Accountant to be told they have a large capital gains tax bill and no way of offsetting it. The best solution is to take advice from professionals that can provide you with tax effective solutions BEFORE you commence investing.

The hardest part about investment tax planning is that it needs to be built on the proviso that you are looking to generate a decent proft. For people who are dipping their toe in the investment world (ie Speculative sharetrading) initally it may be ok (and easier) to just open up an individual share account. But beware speculative trading especially in BioTechs can lead to huge capital gains (and losses) which if held in an individuals name may mean you will pay a significantly higher portion of your profit in tax compared to somebody who has used a structure.

Structure 101.. The following structures are used to manage tax outcomes.

Self Managed Super Fund (SMSF) - If you are close to retirment an SMSF is ideal to build your investment wealth. SMSF's have a flat tax rate of 15% on income (10% for Capital Gains). If you are over 60 and retired the tax rate is 0% .. yes thats right no tax at all. SMSF's are easy to setup, cheap to run (if you are doing your own investments ie not using a fund manager / platform) then the annual ASIC fee of $256 + ATO Fee of $259 and Accountant and Audit fee of $3,000 is all you pay and they are fixed flat fee's not a percentage of your balance like industry and retail funds charge. You can setup a brokerage account and buy and sell whatever shares, BitCoin, Gold, Diamonds you want. So say you were aged 55 and had $100k in PAR in your SMSF and it went up 10x so a capital gain of $900k if you delay selling till age 60 in pension mode then your tax on the $900k capital gain is $0. Even if you are not retired then tax on the capital gain is 10% (alot lower than in your personal name).

Individuals - Holding assets in your own name is playing with fire in my opinion. If you are an active investor with the potential to generate big capital gains then look out if you get a PAR. Imaging generating $900k capital gain personally, even if you have no other income then you will pay tax at the Marginal tax rate on $450k (after the capital gains tax discount of 50%) ouch. Now some people say but I will spred the sales of my shares across financial years to minimise my tax. That's fine if you dont get a take-over as this event will force a capital gains tax event to occur whether you like it or not, alternatively the company my decrease in value over time (Market Risk).

Discrectionary Trusts (Family Trust) - Think of a family trust as an income spliting vehicle it enables you to spread the taxable income. As a general rule the family Trust does not pay tax (well it does at the highest Marginal rate if you dont distribute the income). So in the case of our $900k gain we could distribute this between multiple family members, Adult children, spouse, Grand children (adults), Parents, Siblings or even a related PTY Limited Company (called Bucket Company) to take advantage of their lower incomes.

Pty Limited Companies - These pay tax at a flat tax rate of 30% and what is even better is that the 30% you pay becomes a tax credit (unlike an individual) so that later when the company makes a dividend payment it can pass the tax credits (tax paid) in the form of Franking Credits with the distribution. PTY Limited's are generally not the vehicle to use to trade as they dont get the capital gains tax discounts like a Family Trust or Individual. But they are useful as a holding vehicle.

If you are not close to retierment but are an active investor SMSF's are great to build long term wealth.
A family trust is a great vehicle to Trade shares if you want access to the funds prior to retirment and gives you lots of flexibiliy in terms of how you manage taxable income.
A "Bucket Company" is a great beneficiary for a family trust to hold your wealth until you have time to distribute it more tax effectively.

You should definantly seek the services of a professional to see which strucutre is the most effective for you and this is of course only relevant to Australian Based investors as other countries have different rules.

Back to the Pool

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Thanks Poolboy, a great summary!
When you get a clean towel from the pool attendant, you'll find a voucher for for a rum punch, to be drunk on the pool terrace,while watching the limbo dancers.
Cheers Skip

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Last 28.5¢		Change 0.000(0.00%)		Mkt cap ! $99.83M

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Last updated 15.47pm 25/04/2024 ?

Thanks Poolboy, a great summary!When you get a clean towel from...

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