How much tax do you pay (%)?

[lowb]

Is this a tricky question- how do you define how much tax you pay?

Normally, its
100 x tax paid/total income

but with trusts, negative gearing and etc... is it
100 x (total tax paid) - (tax deduction) / (pre-tax expenditure) + (total income)

is that right?
also,

what sorts of ways have you found to decrease your tax?

*bah, too late to make it so that you can vote two things in the poll!

 

[lowb]

im interested in those who pay 0-5% tax
how do you do that

 

[GIDDO]

I am intersted in those who pay 35% TAX. How much money must you earn to have to pay 35% of your income as income tax?
Am I misinterpreting the poll?

 

[lowb]

1. there are rates of 40% (after 70k) and 45% (after 150k)
2. these will bring the average higher

*************


Tax rates 2006-07
Taxable income

Tax on this income
$0 – $6,000
Nil

$6,001 – $25,000
15c for each $1 over $6,000
$25,001 – $75,000


$2,850 plus 30c for each $1 over $25,000
$75,001 – $150,000
$17,850 plus 40c for each $1 over $75,000

Over $150,000
$47,850 plus 45c for each $1 over $150,000

 

[alexlee]

To pay 35% tax, you'd have to be earning $200k after super, or a $220,000 package.

Surely anyone on that sort of package would have salary sacrificing and various ways to minimise tax, to say nothing of using negative gearing.

To pay 40% tax, you'd have to be on $400k after super, or a $440,000 package.

I'm in a weird situation. I pay 20 odd % in tax in the UK, and my tax rate in oz is negative (net loss position carried forward).

When I come back to Australia, my first year's salary will be completely tax free due to all the accumulated tax losses. That should put a dent in the old PPOR loan.
Alex

 

[The Y-man]

im interested in those who pay 0-5% tax
how do you do that

It's not that hard.... as to how you have anything left over to pay for your living expenses is another factor altogether!

Essentially, if you can live on $6,000 a year, you can use all sorts of instruments to cut your tax right back to zip.
One problem I discovered with this is that you create a bit of a (-ve) cashflow monster in the following years, ending in a whopper CGT (assuming th einvestment has gone well) somwhere down the track.

Other ways for example may be if you are over 55 and deriving income from your Super (more so after the proposed changes go thru).

Cheers,

The Y-man

 

[The Y-man]

To pay 35% tax, you'd have to be earning $200k after super, or a $220,000 package.
Alex

...or someone on a $60k pa salary with $140k coming in from their investments...

Cheers,

The Y-man

 

[lowb]

Essentially, if you can live on $6,000 a year, you can use all sorts of instruments to cut your tax right back to zip.

hi y-man

1. suppose we want to live at 6000 a year, what methods are there to do this? do i need to buy some instruments?

cheers

 

[lowb]

hi

i did a search on the forum on "reducing tax" and there is so much information my brain is about to explode!

i've typed out a basic summary i googled and searched. square brackets are the references where the information is from. sorry for the large amount of text.

maybe the bottom line is: everyone needs an accountant

1. Negative gearing [1]

2. Maximising work-related tax deductions [1]

3. Investing under a trust structure [1]

4. Invest in tax-advantaged investments (e.g. tree plantation, film) [1]

5. Ask your accountant to increase their fees (for copious amounts of tax advice). Accountant fee is tax deductible [1]

6. Claim meals as business cost [2]
If an employer provides a “light lunch” to a current employee on a working day and the meal is consumed on the business premises, the employer can claim a full deduction (s.41 of the FBT Act). This does not work if the employer reimburses the employee for the cost of the meal, it must be a direct payment from the employer. Note also that the more elaborate the meal, the more the Commissioner will try to argue that it is not exempt. For those of you that work from home, you can also claim this benefit as long as the meal is eaten in the business section of your home (FBT Sub Committee 22/5/03).
TAX TIP – Because it must be paid out of employer funds, and not merely reimbursed to the employee, consider keeping a petty cash fund for meals and use the funds in that to pay for meals.

7. Make arrangements with not-for-profit organisation [2]
One way to reduce your tax is to contact a not-for-profit (NFP) organisation and enter into an arrangement whereby you purchase on their behalf an item of capital eg plant, building, and rent it to them.
You then get the depreciation and they get the use of the plant until fully depreciated then they purchase it from you at the NRV.
The depreciation is worthless to them.
It goes without saying that the organisation must actually want the item of capital.

8. Travel to inspect your investment property [2]

9. “The size of your tax deductions is directly related to your ability to know and track all your expenses.” [3]

10. Getting your company to buy you an asset and then selling it [4]
You can only have 1 Laptop a year FBT free. Its in the tax legislation. So what you can do is get your company to buy you a top end laptop. Say it costs 5000.
Take off GST
4545.45
If your in the 30% tax bracket then take 30% off
3181.81
Thats how much you will lose in netpay over the year but you have a laptop worth around 5000.
Sell it on ebay for 4500 and you just made yourself a profit of 1318.19.
This is called the sale of a personal use asset. You dont pay tax on the profit unless the sale is over 10000 I think. So keep your laptop under 10000.
However before doing this one make sure you see an accountant or tax agent. There are often other charges related to salary sacrifice and you may end up worse off. Do your homework before doing anything to avoid tax.\

11. Structuring insurances to be one the same day [5]
Another idea is to restructure your insurances to all be due on the one date, just before the end of fin. yr.

12. Undertake a maintenance programme on all assets of the business , and the rental properties, to improve efficiency and values for the coming year as well as reduce your profit and tax. [5]

13. Prepay interest on the investment property, as you suggested. [5]

14. Tax planning can be a messy subject as you have to keep in mind -
- You may have debts and if you show too low an income the banks get squeemish. One of my favorite sayings is "No pay tax - no get loans". [5]

15. Taxshield has a tax depreciation schedule with surveyors [6]

[1] http://www.somersoft.com/forums/showthread.php?t=24450&highlight=reducing+tax
[2]
http://www.somersoft.com/forums/showthread.php?t=22449&highlight=reducing+tax
[3]
http://www.flyingsolo.com.au/p198108349_Reducing+tax+by+maximising+tax+deductions.html
[4]
http://forums.whirlpool.net.au/forum-replies-archive.cfm/454916.html
[5]
http://www.somersoft.com/forums/showthread.php?t=19069&highlight=reducing+tax
[6]
http://www.taxshield.com.au/

 

[Bandita]

GReat post lowb!

I didn't know about the employer providing lunch one........

So say, at least 3 times a week there's some sort of large meeting at you work involving lunches (which you may or may not be a part of), and the leftover sandwiches are distributed in the lunch area (hence my usual lunch - 1 day a week part of, 2 days a week not part of - but always get it ).....

Are all 3 lunches tax deductible? And how do you calculate what the lunch is worth? I imagine there's no way to have actual receipts for it?

Very interesting!!

Cheers,
Jen

 

[The Y-man]

hi y-man

1. suppose we want to live at 6000 a year, what methods are there to do this? do i need to buy some instruments?

Examples of instruments:
1. Highly (i.e. -ve) geared residential property
2. Geared managed funds
3. Geared shares

Cheers,

The Y-man

 

[alexlee]

hi y-man

1. suppose we want to live at 6000 a year, what methods are there to do this? do i need to buy some instruments?

cheers

lowb, CAN you live on $6000 a year?

 

[GIDDO]

hi y-man

1. suppose we want to live at 6000 a year, what methods are there to do this? do i need to buy some instruments?

cheers

Can you expand on what you mean by this - LOWB or Y man?

Are we we talking about personal expenses paid by structures owned by the investor?

I reckon to live on 6k per annum you would need an instrument - yes. Maybe something that seals your mouth so you don't need to eat!

 

[The Y-man]

Are we we talking about personal expenses paid by structures owned by the investor?

Sorry, I wasn't trying to be complicated

Simply, if you earn $60,000 in salary, and have interest costs of $54,000, you won't be paying tax.

If you need to "top up" you might look at getting some Commercial Property Trusts that are "tax advantaged" (i.e. a proportion of it is not taxable) or shares that pay franked dividends.

Cheers,

The Y-man

 

[lowb]

i need to seal my mouth

i was thinking about my expenses, per year, they are approx
train travel, 1500
car maintenance, 2000
hcf, 500
mobile, 600
internet, 600
HECS, 3000
crap, thats past 6000 already

didnt even have anything to eat

1. if i have 60,000 income, interest costs of 54000 i would still pay tax if i have rental income?

2. suppose i have 60,000 income, then get 60,000 of franked dividends, does it mean i pay no tax?

 

[The Y-man]

1. if i have 60,000 income, interest costs of 54000 i would still pay tax if i have rental income?

2. suppose i have 60,000 income, then get 60,000 of franked dividends, does it mean i pay no tax?

1. You income is counted as sum of all income. i.e. salary 60k + 40k rent income = 100k. Less interest of 54k = 46k income.
You'll pay tax of
$2,850 plus 30c for each $1 over $25,000

2. Salary 60k + 60k dividend (FULLY franked at 30% as an example) less $54k interest as above
You'll pay $13,350 less franking credits - if I have done the calc correctly, I think you'll pay $8.700 TAX.

Don't take my numbers as gospel - that's what accountants are for

Cheers,

The Y-man

 

[alexlee]

i need to seal my mouth

i was thinking about my expenses, per year, they are approx
train travel, 1500
car maintenance, 2000
hcf, 500
mobile, 600
internet, 600
HECS, 3000
crap, thats past 6000 already

didnt even have anything to eat

Lowb, do you think your expenses are going to stay at this level? Food, clothes, entertainment, holidays, etc. Further on you have family expenses, etc. How much is petrol costing you? You will move out eventually, I assume.

With property, as I'm sure you know, the tax rate becomes a bit irrelevant. I mean, having $50k income and $10k depreciation is NOT the same as having $50k income and $10k cash property expenses. Franked dividends throws it out again depending on your marginal tax rate. Work overseas and it becomes even weirder.

Of course as investors we want to pay as little tax as possible. It depends on the nature of the tax deduction as well. Bottom line: it should be about net cashflow. Personally, I think it's more productive to focus on gross assets and cashflow. I can't live off tax deductions.

The best way to minimise tax is to only work to the extent that you make $6k. Zero tax, but what sort of life have you got?
Alex

 

[D.T.]

I pay close to zero tax. It's extremely easy, just be an underpaid semi-professional with a couple of investments here and there

 

[Sultan of Swing]

I'm surprised noone has mentioned depreciation, both on chattels and buildings.

These are both no-cash deductions that reduce tax without having to 'buy' a tax deduction.

 

[Sultan of Swing]

So there are 4 forumites earning more than a million a year?

I could hazard a guess at one but now I'm curious as to who the other 3 are.....