TAX STRATEGIES

This structure is the most flexible structure but also the most taxed structure. Growing wealth in your personal names could see you pay the highest marginal tax rate, currently at 45% plus Medicare levies depending on the level of income you earn.

Advantages

• Flexibility with what you can invest in

• Ease of access to investment funds with little to no restrictions

• Expenses can be offset against personal income

• Some assets may be exempt from capital gains tax

Disadvantages

• Highest marginal tax rate could apply

• Limited opportunities to explore tax minimisation and asset protection strategies

• It may be too simple for complicated family and individual circumstances.

Using a trust in growing your wealth could be beneficial to you depending on your circumstances. You must understand that the trust itself – although can hold income – must distribute any net income and net capital gain to beneficiaries to ensure it remains tax efficient.

Why you may consider a trust

• A trust can provide you with asset protection.

• A trust can separate the control of an asset from the owner of the asset. This could be useful for protecting assets of a vulnerable people such as young people, disabled people or family units

• Trusts are very flexible for tax purposes. You can direct the distribution of income and capital gains to specific beneficiaries to better manage tax

• Beneficiaries of a trust are generally not liable for the trust debts, unlike your personal names

• Tax is paid at beneficiaries’ marginal tax rates except if net income is held within the trust.

Disadvantages of a trust

• Trusts are complex in nature and must be set up properly. There are potentially high costs in setting up and running one.

• Assets are held and controlled by the Trustee for the benefit of the beneficiaries. The rules and conditions are all controlled by a Trust deed.

• Investment losses cannot be passed on to beneficiaries as it is the case with individuals

• Any income retained in the trust is subject to the highest marginal tax rates.

Having a goal will help you with creating a budget you’re likely to stick to. Remember, it does not have to be a big goal. It could be as simple as, meeting a savings target, or saving for a holiday, a new pair of shoes or a big ticket item as saving for a deposit for a home or saving for an investment. By having a target, and a small achievable target, you’re more likely to stick to your budget.