Looking for alternatives to property as an investment as part of your overall tax effective structuring?
Traditional investments that may be considered can include property and investments on “the share market” or high interest earning accounts.
It is likely that assets you hold (outside of your family home) and make a profit from selling will result in you paying CGT.
Like with any investment it’s important to make sure you have done your research, knowledge is key in any investment you are pursuing and knowing the income tax outcomes is one key consideration.
Here are just a few alternatives and their likely income tax consequences:
Term Deposits and High Interest Earning Accounts
Just like your salary and wages or business income, the interest you earn on term deposits and high interest earning bank accounts is subject to income tax when received.
If your term deposit term extends over a period of a year you will only receive interest at maturity, and will pay tax on your interest in the year that you receive it.
There are no capital gains tax consequences on these types of cash investments.
Holding these types of accounts in entity or individual names with lower tax rates to that of the Medical Practitioner would be beneficial from an income tax point of view.
The Share Market
Income you receive from investing in publicly listed companies or listed managed funds (dividends or distributions) will generally be taxed at your marginal tax rate.
Companies pay dividends to their shareholders; tax effective dividends are franked dividends because the tax you pay on them is reduced by the amount of tax the company has already paid by way of imputation credits.
Listed managed funds usually pay income or ‘distributions’ to their investors periodically. The distribution represents profit earned by the managed fund during that financial year.
The distribution can be made up of various profits earned during that period and could include dividends, interest and foreign income or gains/losses on its investments.
Unlike Term Deposits or cash, there are capital gain consequences on the disposal on these investments.
Any profits you make when you sell an investment is a capital gain. In the instance where individuals hold their shares for more than 12 months typically they only have to pay tax on half of the gain.
If you sell shares at a loss, a capital loss is made, generally you can carry this loss forward and deduct it from any capital gains made in future financial years.