This involves many people hauling out boxes of receipts for the 12 months leading up to June 30. These days, of course, many more of these receipts are likely to be stored online.
Despite this extra concentration on tax towards the end of a financial year, tax professionals typically advise taxpayers to treat tax-planning as a year-round activity. This is opposed to regarding it as a last-minute endeavour for taxpayers’ to try to improve their positions before tax returns are due.
Investment is one of the key areas warranting an all-year focus on efficient tax-planning.
Countless investors underestimate the impact of tax on their investment returns, particularly when markets have been rising. Yet taxes - along with investment management costs - can have a huge impact on an investor’s real returns.
In short, the lower your costs (including tax), the greater your share of an investment’s returns.
One of the attributes of index-tracking exchange-traded funds (ETFs) and unlisted indexed funds, for instance, is their potential tax efficiency.
ETFs and index funds typically buy and sell securities less frequently than many actively-managed funds. In turn, a lower turnover of securities by a fund helps keep capital gains tax to a minimum.
Many investors choose to hold ETFs and traditional index fund investments in a superannuation fund, further enhancing the tax attributes of these investments.
Superannuation, of course, provides a series of opportunities to keep tax costs down. Salary-sacrificed contributions are taxed at 15 per cent rather than at marginal tax rates, and a super fund’ income is taxed at a maximum of 15 per cent, with the capital gains taxed at 10 per cent.
And superannuation assets backing the payment of a superannuation pension are not subject to tax, and pensions or lump sums paid to members over 60 are not taxed in their hands.
Investors should not underestimate the degree of control that they can have over their investments costs, including taxes.
This article represents a general view, so we encourage you to contact Southern Advisory to seek financial advice before making investment decisions.
Source: Smart Investing™ written by Robin Bowerman, Vanguard Australia