The Government’s announcement that it intends to change the already legislated stage three tax cuts is worse than a broken promise. It is a breach of a contract between the legislators and the Australian people.
In 2019 the Government developed a plan to give everyone tax cuts. It was negotiated with input from all political parties and lobby groups. The plan agreed on gave cuts to low income earners first, then middle income earners a little later, and finally high earners from July 2024.
The plan was legislated. Low and middle earners have received their benefits. High earners have been waiting patiently for theirs. Now this Government intends to renege on the contract. Is it any wonder so few people trust politicians?
There are strategies higher earners can use to reduce their tax payments. Those who work for FBT exempt charities and government departments can use salary packaging to make loan payments and some other purchases from pre-tax pay, up to an annual limit. The options are well worth exploring.
Super contributions by salary sacrifice and deductible lump sum can reduce tax considerably. They especially suit older high earners who are closer to retirement. They offer a low-risk way to reduce tax and boost retirement savings.
The current limit for deductible contributions is $27,500 per annum including employer contributions. People whose super balance was under $500,000 on the previous June 30 can put in more by using the catchup rules, if they haven’t put in the maximum amounts in previous years.
Family trusts can help business owners with older children such as university students. They allow profits to be paid to lower income family members, but the distributions must actually go to them. Trusts become less useful when the children join the workforce and have full time salaries.
Interest paid on loans taken to buy investments is tax-deductible. Borrowings can be used to invest in managed funds, shares or a property. If the interest exceeds the investment income it is deductible against other income such as salary. This negative gearing can reduce tax on salary.
It can also grow wealth, though there will be capital gains tax when the investment is sold. Gearing of managed funds and shares can be done with smaller amounts than required to buy a property. Shares pay dividends with tax credits, and buying and selling is quicker and easier than property.
Those who don’t want to borrow to invest can use tax paid insurance bonds. These limit the tax paid on earnings to thirty per cent maximum, and often much less, if held for at least ten years.
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