The top 20% of income earners in Australia have the most tax concessions. According to Rice Warner, “It is self-evident that the tax concessions for superannuation are tilted towards those Australians who have the most income and wealth, and who have the highest personal marginal tax rates”.
A recent budget announcement of tax levies for incomes above $180,000 can be an opportunity for high-income earners to seriously consider the financial plan that they currently have in place. Like most Australian earners, these individuals can salary sacrifice up to concessional contribution limits into superannuation. In fact, with salary sacrificing, you can increase your super and reduce your tax at the same time. According to Thomas Noble & Russell, “For taxable income levels between $180,000 and $273,000, the tax saving will be 34%. For income levels between $273,000 and $300,000 it will be between 34% and 19% and for income levels above $300,000 the saving will be 19%,” for salary sacrifice into super.
We find that high-income earners don’t usually make the most of their income, often postponing serious planning until later in their lives. For tax-effective wealth management, asset protection or preparation for retirement, financial strategy for high-income earners — with the help of an adviser — is needed.
Australia’s high-income earners can invest in family trusts. A family trust or a discretionary trust can be a means for them to build wealth if they apply tax-effective financial strategies. In this case, they could distribute the trusts profits to trustees while remaining under the tax-free threshold thereby creating wealth by decreasing their tax. Investing in a lower-income spouses’ name would also be appropriate. Duncan Hughes writes for AFR, “If the other spouse is a higher rate taxpayer, then the $25,000 concessional cap remains an effective tool.” Self-managed super funds (SMSFs) are also possible controllable options for high earners, as well as owning property such as a home.
Contrary to common conception, the bulk of tax concessions in Australia go to middle-income earners and not to the higher-income ones. Professional Planner busts the tax concessions myth related to superannuation with this fact: “High-income earners get the most benefit from concessional capital gains tax treatment, negative gearing and exemptions for the family home”.
The sooner you begin planning for your financial future, the better. Talk to your financial planner before salary sacrificing and go over strategies for your finances, investments, with them.
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