Below are the four topics we get asked the most about at tax time by clients who are trying to increase their wealth and save on tax.
It is very important to get advice on the following before deciding they are right for you. In some cases they may not be suitable to your circumstances and may even leave you worse off if not approached with the proper level of understanding.
Private health insurance
Private Health Insurance is an insurance cover which assists in paying for costs relating to an individual’s treatment as a private patient in an Australian hospital.
The Medicare Levy Surcharge (MLS) is a Federal Government initiative designed to encourage individuals to take out private hospital cover, and where possible, to use the private hospital system to reduce the demand on the public system.
The MLS is levied on Australian taxpayers who do not have private hospital cover and who earn above a certain income. Holding Private health cover may reduce your Medicare surcharge levy amount.
If you are considering Private Health cover or already hold some make sure you talk to your Power2 Tax Consultant about the potential tax savings.
The main purpose of this type of insurance is to make sure you and your family are not financially disadvantaged due to your wage ceasing when you are injured or ill.
In most cases income protection pays a monthly benefit to help replace your lost income for a set period or until you return to work. The cost of cover varies depending on factors such as age, occupation, smoking status and existing medical conditions. Options relating to waiting periods and benefit periods can also alter the cost of premiums.
In most cases, the cost of your income protection premiums are tax deductions, while any insurance claim payments are treated as assessable income in your tax return for that year.
A Power2 Financial Planner can help you to understand what insurance is right for you as well as the costs and benefits.
Gearing simply means borrowing money to invest in an asset such as Property or Shares. Negative gearing is when the expenses you pay out ( loan interest, rates etc) are more than the income (rent, dividends) you receive. Basically, you lost money.
Here is a simple example:
|Purchase an investment property with a $400,000 Loan|
|Total income for the year (Rent)||$22,360|
|Other Rental Expenses||$5,000|
|Total Loss on your Rental property for the year||$10,640|
Depending on your other income the $10,640 loss you took will result in a refund somewhere between $0 and $5,000.
So even after a tax refund negative gearing still means your investment lost money for the year. The strategy behind Negative Gearing is that the above rental property will increase in value over time and that will make up for all the years of losses along the way.
If you would like to know if negative gearing is something that suits your financial situation speak with a Power 2 Financial Planner.
Superannuation is a way to save for your retirement. The money comes from contributions made into your super fund by your employer and, ideally, topped up by your own money. Sometimes the government will also add to it through co-contributions and the low income super contribution.
For most people, super will be taxed at a lower rate than a similar investment outside super and making contributions can significantly reduce the amount of tax you pay.
Of all the different ways to increase your assets and reduce your tax burden we believe superannuation provides the most efficient vehicle.
In some cases you can also hold death, disability or income protection insurance through your super account at a cheaper price and more tax effectively than if you bought it outside of super.
There are many different strategies available related to superannuation that can significantly increase your assets and reduce your tax. Talk to a Power2 Financial Planner about the ones that suit you.