As we approach the final weeks of the financial year, it’s a good time to consider some tax time tips.
From 1 July this year every working Australian will get a pay rise in the form of reduced taxes.
What this means specifically is that:
- someone earning $90,000 will have access to $1,900 more disposable income annually;
- someone earning $120,000 will have access to $2,700 more disposable income;
- someone earning $180,000 will have access to $3,800 more disposable income; and
- someone earning $250,000 will have access to $4,500 more disposable income
Sounds reasonable doesn’t it, every cent back in our pocket counts, but here’s the thing; we still pay a lot of tax.
If I break it down for you, it looks like this:
- someone earning $90,000 will pay $17,788 in tax a year;
- someone earning $120,000 will pay $26,788 tax;
- someone earning $180,000 will pay $47,937 tax; and
- someone earning $250,000 will pay $78,637 tax.
Anyone earning $100,000 per annum – the average full-time wage in Australia – will pay more than $1 million in tax in their lifetime, I think you’ll agree, it’s a staggering amount.
Anyone earning $250,000 per annum will pay more than $3.5 million in tax during their lifetime. This is because in Australia we have what’s called a tiered tax system, where your taxes increase the more you earn.
So, what is my tax tip you might ask? I suggest that you do something about reducing the tax you pay.
If you aren’t doing everything you can to reduce the tax you pay, then you aren’t working ‘smart’ – and the reality is that we need to work smart to get ahead in life.
It’s not enough to work smart, pay our taxes, then our mortgages or rent, and hope there’s enough left to squirrel away for our future.
The good news is there are plenty of legal ways to reduce the tax we pay.
A competent accountant can provide valuable advice on available options, which is why I emphasized their importance in Bulletproof Investing as one of the key members of our ‘investment’ team.
When it comes to property investing, most people would be forgiven for thinking that interest on a bank loan is the biggest tax deduction afforded to investors.
It’s not … depreciation is. In fact, 100 per cent of the cost of a new house can be depreciated, with the majority capable of being deducted in the first decade.
The best part is that you can use the depreciation amount as a tax deduction, even though you technically haven’t ‘paid’ for it. This is often referred to as a paper loss.
My wife and I are in the top couple of tax brackets, which would mean we are up for paying tens of thousands in taxes each year … except that we have property investments.
We pay around 10 per cent tax on our income versus the circa 25- to 30 per cent we would have to fork out without our investments.
The result is $30,000 to $50,000 in tax refunds each year, which we use to pay off our home loan in advance.
This will amount to more than half a million dollars which we will pay against our mortgage, or into our pockets, instead of handing it over to the tax man during our working lives.
I don’t say it to brag, but rather to highlight the significance of having a strategy for reducing taxes.
Unfortunately, 90 per cent of working Australians don’t receive a meaningful tax refund.
That doesn’t make sense to me, I want to help you get ahead and live the life you deserve.
