Author Topic: Top bracket tax tips  (Read 6749 times)

PggDgg

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Top bracket tax tips
« on: April 23, 2019, 05:28:50 AM »
Who here is in over 180k (or even 250 so affected by div 293)?  As Kerry Packer said “the government isn’t spending it well enough that we should be donating any extra!”

Share your legal tax tips to minimise the impact!

Mine:
If your spouse doesn’t work (or only works part time) they are eligible for a $3000 post tax super contribution if they earn under 37k - good for a $540 deduction. https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/Super-related-tax-offsets/#taxoffset

Investing within super your CGT is only 15% for less than 12 months and 10% for more than 12 months holding period.

Hand bags and briefcases can be tax deductible: https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim/tools,-equipment-and-other-assets/

Deductions up to $300 can be written off immediately.  (New AirPods are $249 AUD)

Buy an investment property and have the tenant pay it off, enjoying the depreciation etc.  when the kids move out, sell the family home (tax free capital gain) and move into your investment property and stay there until you die.
« Last Edit: April 23, 2019, 05:30:50 AM by PggDgg »

marty998

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Re: Top bracket tax tips
« Reply #1 on: April 23, 2019, 06:41:58 AM »
All of these tips apply to taxpayers at all income levels, though you would be hard pressed convincing the ATO that new Air Pods don't have some component of private use apportionment required.

The best answer is to earn less.

The net best is to find ways to put investment income in the lower earning spouses' name.

One of the bigger ones to do around this time of year is to pre-pay a year's interest on an investment property. Works really well if you have a CGT bill from selling other investments or if you are retiring soon and your income will be much lower the following year.

Bloop Bloop

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Re: Top bracket tax tips
« Reply #2 on: April 28, 2019, 01:33:28 AM »
If you have a pre-2017 investment property deduct hard on the plant and depreciation - better to wipe down your income now (and pay 1/2 of it back in CGT when you sell).

Remember that any vehicle can be a business vehicle - just need to follow the 12 week logbook method and after that you can apportion all vehicle expenses - this includes extra servicing and costly consumables if you happen to also use that car for, say, track days.

Family trusts, if you have a lower earning spouse and/or adult children.

If your partner wants to do some work for you (e.g. book-keeping), nothing stopping you from paying him/her a reasonably healthy market rate and that way splitting off some of your business profit. Better give that $40/hr of book-keeping to your partner than some person out there who's not an intimate relation.


Bloop Bloop

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Re: Top bracket tax tips
« Reply #3 on: April 28, 2019, 01:36:16 AM »
Remembered a few more -

Home office deductions can be significant. Make sure you read the ATO policy and go by the proper rules.

If you have an investment property with an offset, remember to 'borrow' from the offset when you make any large purchase.

If you have a PPOR mortgage to pay off, borrow the money against your IP or business - since IP/business debt is deductible whereas PPOR debt is not. You're better off deliberately accruing debt against your IP or business overdraft and paying off the entirety of your PPOR.

Banks often offer lower rates for PPOR versus IP loans - so if you have a house that can be either, try to steer it towards being reclassified as the former.

marty998

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Re: Top bracket tax tips
« Reply #4 on: April 28, 2019, 01:43:14 AM »

If you have a PPOR mortgage to pay off, borrow the money against your IP or business - since IP/business debt is deductible whereas PPOR debt is not. You're better off deliberately accruing debt against your IP or business overdraft and paying off the entirety of your PPOR.


This is not true. It's the use of funds that determines deductibility of the interest, not the security used for the loan. e.g. you can't borrow money against the investment property to fund a holiday and claim the interest.

Bad tax advice like this is liable to incur significant penalties!


Bloop Bloop

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Re: Top bracket tax tips
« Reply #5 on: April 28, 2019, 03:54:03 AM »

If you have a PPOR mortgage to pay off, borrow the money against your IP or business - since IP/business debt is deductible whereas PPOR debt is not. You're better off deliberately accruing debt against your IP or business overdraft and paying off the entirety of your PPOR.


This is not true. It's the use of funds that determines deductibility of the interest, not the security used for the loan. e.g. you can't borrow money against the investment property to fund a holiday and claim the interest.

Bad tax advice like this is liable to incur significant penalties!

You are right. I should have clarified that what I meant was you go into debt against your IP or business to free up cash flow and then put the cash flow into your PPOR.

E.g. imagine I have business rent of $10k a month. There's nothing - other than an overdraft limit - stopping me from going into $10k of business debt each month and spending all the proceeds of my business that 'should' be going on paying expenses on my PPOR mortgage instead. I'm free to do what I like with my cashflow. I can pay all my business revenues into my PPOR, let all my business expenses fall against my business loan and deduct the entirety of the latter.

marty998

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Re: Top bracket tax tips
« Reply #6 on: April 29, 2019, 02:01:29 AM »

If you have a PPOR mortgage to pay off, borrow the money against your IP or business - since IP/business debt is deductible whereas PPOR debt is not. You're better off deliberately accruing debt against your IP or business overdraft and paying off the entirety of your PPOR.


This is not true. It's the use of funds that determines deductibility of the interest, not the security used for the loan. e.g. you can't borrow money against the investment property to fund a holiday and claim the interest.

Bad tax advice like this is liable to incur significant penalties!

You are right. I should have clarified that what I meant was you go into debt against your IP or business to free up cash flow and then put the cash flow into your PPOR.

E.g. imagine I have business rent of $10k a month. There's nothing - other than an overdraft limit - stopping me from going into $10k of business debt each month and spending all the proceeds of my business that 'should' be going on paying expenses on my PPOR mortgage instead. I'm free to do what I like with my cashflow. I can pay all my business revenues into my PPOR, let all my business expenses fall against my business loan and deduct the entirety of the latter.

Yes... I agree this strategy has merit, however if the after tax cost of the business overdraft interest rate is higher than the PPOR rate then you're still losing money (last I checked, small business overdraft rates were quite high?)

The ATO doesn't like strategies like this where interest might be capitalised on an IP while you pay down the PPOR. In certain circumstances I have seen Part IV A applied to deny the deductions, on the basis that this is a scheme with the dominant purpose of reducing tax.

Tread carefully :)

Back on topic.... one of the best exemptions from tax I've seen is the small business CGT exemptions, in particular the 15 year rule:

https://www.ato.gov.au/business/small-business-entity-concessions/concessions/cgt-concessions/

Quote
If you are aged 55 or older and retiring or are permanently incapacitated, and you have owned an active business asset for at least 15 years, you won’t pay CGT when you dispose of the asset by sale, gift or transfer.

Amounts from this exemption may be able to be contributed to your super fund without affecting your non-concessional contributions limits.


Bloop Bloop

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Re: Top bracket tax tips
« Reply #7 on: April 29, 2019, 02:42:52 AM »
Hi Marty

Yes, I considered the effect of Part IVA and taxation determination 2012/1.

My view is that there is a huge grey area between accepted tax practice (e.g. - IO loan on your IP; P&I loan on your PPOR) and practices to which Part IVA could legitimately apply.

I also believe it is very difficult for the ATO to enforce Part IVA in such a circumstance for a range of pragmatic reasons both on the taxpayer's end and the ATO's end.