There are many different assets and areas you can invest in – in Australia and internationally.
However, if you really wish to maximise your investments and increase your wealth, proper tax management is crucial.
How is investment income taxed?
You must declare all income you earn from your investments in your tax return.
Investment income you must declare in your tax return to the Australian Taxation Office (ATO) includes:
- interest
- dividends
- rent
- managed investment income distributions
- capital gains
Whether you’re a seasoned investor or a beginner looking to get into investing, it is important to plan your taxes to get the most out of your investments.
1. Tax Tips for Property
Taxes may become a bit more complicated if you own rental properties. But with the right tax knowledge, you can maximise your investment income.
One thing you need to know about tax management in rental properties is that organisation is crucial. This means making sure the rental income is correctly distributed between owners, the interest expense claims are properly computed, and capital costs claims are depreciated.
Additionally, if you have properties that are currently available for rent or being rented out, you can actually claim immediate deductions for various expenses, such as repairs and maintenance, investment loan interest, and land tax.
You can also claim depreciation for the declining value of some assets, such as hot water systems, stoves and even carpets.
2. Capital Gains Tax Planning
If you want to lower your capital gains tax (CGT), it is crucial to plan accordingly.
For example, you should definitely plan for the appropriate time to dispose of your appreciating assets; otherwise, you may trigger a capital gain at a time that is not optimal. CGT is also be triggered by entering into a contract for the sale of an asset, and not the date of settlement.
When the contract entry and settlement happen to be around the end of a financial year, it may be preferable to defer the sale of the asset to the next year. You also need to consider how long you have owned the asset to access for the 12-month holding period under the capital gains tax discount rule.
3. Investment Deductions
There are actually many instances where you can claim a deduction for the expenses you incurred in earning investment income.
For example, you can claim investment deductions for ongoing management fees for financial advice or tax advice regarding changes to your investment portfolio.
You can also claim:
- interest charged on money borrowed to purchase investments
- a portion of costs if they were incurred in investment management investment (travel expenses, investment journals etc.)
Another example would be the account-keeping fees from an account you’re using for investment purposes.
4. Get Your Investment Structures Right
One of the most effective ways to save tax on your investments is to get your structures right. There is no right or wrong way to structure your investments because everyone’s circumstances are different.
Many investors simply purchase assets in their own name or joint names, when other ownership structures may be more suitable for their situation.
Here are some of the structures you can consider:
- Individual Structure
- Trust Structure
- Company Structure
- Superannuation Fund
Before you purchase an asset it is important to consider the most appropriate investment structure to use – structures can also serve to protect your assets.
Increase your wealth with the help of Cambio Group’s financial advisers and CPA Australia-registered tax agents.
We are an accounting, business advisory and financial planning practice in the Gold Coast helping individuals, families and retirees with investment planning.
We do this by eliminating complexity, following evidence-focused investment practices and matching your investment strategy with your financial goals.
Contact us today to get started.
Disclaimer: The information (including taxation) in this website does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.
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