Land tax: What investors can do to minimise it
When purchasing an investment property, land tax is one of the hidden costs that property investors often don’t take i...
Investors who have sold financial products for a profit are being urged to use the last month of the financial year to reduce their tax liability or face a large capital gains tax, an industry expert has revealed.
With many investors unaware of how to calculate capital gains taxes, they are often caught off guard and pay more in tax than otherwise required.
According to Creation Wealth’s senior financial adviser, Andrew Zbik, investors need to understand their tax liabilities.
“First, you need to calculate what your capital gain is. This is the sale price less your purchase price and any capitalised expenses,” he noted.
“Secondly, do you qualify for the capital gains tax 50 per cent discount? If you have held the asset for more than 12 months, you will be able to choose one of two methods to determine how much capital gains tax is payable.
“Thirdly, what will your marginal tax rate be? Many people are mistaken in thinking there is a separate tax rate for capital gains tax compared to personal income tax. This is not the case.”
The financial adviser explained to investors who have sold financial products throughout the year, including investment properties and shares, that they can reduce their tax liability in three easy ways.
Make some additional concessional contributions to super
With the tax-friendly benefits of the superannuation system, Mr Zbik highlighted to investors that they can reduce their taxable income by adding to their retirement savings.
“You can opt to make a personal deductible superannuation contribution to your superannuation fund. These are only taxed at 15 per cent (or 30 per cent) if your taxable income is over $250,000,” he explained.
“It is important to keep in mind that you cannot exceed the concessional contributions cap of $25,000 for the 2020-2021 financial year.”
While highlighting the tax advantages, he warned inventors who use this approach that they cannot use the money for personal purposes until they have retired.
Prepay interest expenses for next year
Alternatively, investors who do not want to reduce their tax liabilities through their superannuation are being advised that they can prepay interest from capital gains next year.
“For example, if you have some capital gains resulting from the sale of shares, and you own an investment property, pre-paying next year’s interest on your loan prior to 30th June means you can offset the capital gain in this financial year,” Mr Zbik said.
However, this strategy is only a one-time thing, meaning investors will not be able to claim the interest expense in the next financial year.
“This strategy may be appropriate if the sale of an asset with a large capital gain in the current financial year has pushed you into a higher marginal tax rate bracket,” the financial adviser noted.
Prepay your advice expenses
Mr Zbik also urged investors to speak to an industry professional and ask if there are prepaid fees that they can pay in advance.
“There are several more complex strategies that may be available to some people based on their personal circumstances,” Mr Zbik concluded.
Capital refers to the financial resources that are available to be used for income generation.