Who pays next to nothing in tax?

Some of our friends pay literally nothing in tax due to the way they distribute losses etc...and they're what i would call high income earners (i.e. above $200K/year)

just wondering what other methods people use (or their accountants) to minimise the tax they pay (legally of course) besides distributing losses???
 
There are hundreds of strategies but it depends entirely on the individual's circumstances. A business owner will have different strategies to a property developer who will have different strategies to a high income earning employee.

I always say to people the best way to pay no tax is to earn no income. There are lots of people on social security benefits who have a tax rate between 0 - 2% per annum.
 
If you are PAYG employee, I'd say you have very little chance of paying $0 tax unless you're running such a negatively geared portfolio that you are living on bread and water. Why would you want to pay $0 tax in that case cos you are effectively still LOSING money. The guys who pull in $200k+ and pay next to nothing tax will be the ones who are self employed and probably run a few businessés on the side as well to "soak"up the revenue. Some Doctors use Service Trusts who distribute income between family members nicely and back into their practice or better still, into family companies who run development or investment projects. If they do pay tax, these franking credits are sitting nicely in their companies.

The asset you buy becomes irrelevant if you can't structure your affairs. Multinationals and wealthy families don't pay their tax advisers $600-$800 an hour cos they enjoy their company.
 
A lawyer can't take spouse as a partner if that spouse is not qualified but a lawyer's spouse can own the copier :D and charge the firm 20c/copy and said lawyer will copy every page of every document, no matter how large.
 
If you are PAYG employee, I'd say you have very little chance of paying $0 tax unless you're running such a negatively geared portfolio that you are living on bread and water. Why would you want to pay $0 tax in that case cos you are effectively still LOSING money. The guys who pull in $200k+ and pay next to nothing tax will be the ones who are self employed and probably run a few businessés on the side as well to "soak"up the revenue.

Asdf,

We're PAYG with a sizable property portfolio, are not self employed and do not run any other businesses on the side to "soak up" revenue as you put it.

We're also around the income bracket you mention (from payg / rent ), have a taxable income of less than $0.00 plus receive tax credits from the ATO to write off surplus unclaimed deductions against future years income simply because we have exhausted our taxable income available in the current year.

No bread or water diet either! :eek:

Is your above statement based on opinion, experience or fact?
 
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just wondering what other methods people use (or their accountants) to minimise the tax they pay (legally of course) besides distributing losses???

Our main tactic has been to borrow money to buy CG type assets (eg properties, shares), prepaying the following year's interest.

We found 10%-15% is about the practical lower limit for this method...

Cheers,

The Y-man
 
Yes i'm referring to self employed not PAYG.

Rixter, Would you be able to expand on how you 'soak up the revenue so to speak?
Our accountant is good but doesn't seem to be offering us any (legal) strategies to help us minismise the tax we pay.

We haven't done our tax return yet but 06/07 tax period saw our profit margins exceed the $300K mark however, before we get started :)eek:) on our tax returns we'd like to possibly learn what other ways people do this so we're not just limited to the advice of our accountant?

You can PM me if you prefer :)

Cheers!
Kim
 
Kim,

This is the CGA strategy they has allowed us to reduce our current years taxable income to below zero.

Apart from all the usual cash expense deductions we also accumulate a lot of non-cash deductions from each property purchase year after year.

These non cash deductions (brought about by one of my purchasing criteria being new/near new property) are the icing on the cake that allows you to reduce your taxable income further with no cash expense outlay, thereby maximising & preserving your lifestyle funding.

I hope this helps.
 
Taxes come in many forms....

They still get you though with Stamp Duty on purchases etc ;)

Exactly right Redwing.

We haven't paid any income tax since '02, and aren't likely to ever have to pay income tax again, but we've been forced to contribute to the State's coffers by all of the other non-avoidable ways they stick you.

By far and away the largest one is stamp duty on title transfer.....but hey, if you want to play, youse gotta pay.

Having just completed our latest acquisition, this has pushed our total stamp duty bill for the portfolio to a tich over the 2m mark....so we don't feel the slightest bit of guilt about not paying income tax. We figure it'll be a while before Mr and Mrs Battler paying income tax catch up to our contributions.

In the immortal words of KP back in '91 when addressing a Senate committee :

"Anyone in Australia who pays more tax than they need to needs their bl00dy head read. I can tell you that you aren't doing a good enough job with the funds I do give you, why would I want to donate any extra."

....or something like that. :)
 
I find in my experience that wage earners who don't invest pay their tax. Business owners who don't invest get away with a little more. People who invest pay much, much less tax and grow financially prosporous. It gets to the point where you wonder why people don't invest when it grows wealth and reduces your tax bill.
 
Hiya

I subscribe to a combination of the Jom Rohn Version and my brother in laws version of income tax.

Combined, these say ( rolf translation) ... be happy to pay a disproportinate amout of income tax, for in the end u and ur offspring will benefit.

Having lived in countries where taxes of various sorts are administered by those in beneficial receipt, id have to say Australia isnt so bad.

ta
rolf
 
Asdf,

We're PAYG with a sizable property portfolio, are not self employed and do not run any other businesses on the side to "soak up" revenue as you put it.

We're also around the income bracket you mention (from payg / rent ), have a taxable income of less than $0.00 plus receive tax credits from the ATO to write off surplus unclaimed deductions against future years income simply because we have exhausted our taxable income available in the current year.

No bread or water diet either! :eek:

Is your above statement based on opinion, experience or fact?


Tis based on the Tax Statements provided by a previous client who was a Medico Consultant that ran a service trust for his main revenue business and a couple other property/investment related companies.

If you're reducing your income to virtually $0 then you must have a sizeable negative expense pool? or the depreciation throw backs must be very generous. My point is just that if trying to pay $0 tax you end up with $0 in your pocket then theres no point trying to simply achieve that goal. Yours is obviously one way you can achieve that goal but still enjoy the cake at the end of the day.
 
Tis based on the Tax Statements provided by a previous client who was a Medico Consultant that ran a service trust for his main revenue business and a couple other property/investment related companies.

But, I believe you can only charge the service trust market rates for the goods/services it provides, to knock this one on its head.
 
If you're reducing your income to virtually $0 then you must have a sizeable negative expense pool? or the depreciation throw backs must be very generous. My point is just that if trying to pay $0 tax you end up with $0 in your pocket then theres no point trying to simply achieve that goal. Yours is obviously one way you can achieve that goal but still enjoy the cake at the end of the day.

People get too hung up on finding ways to avoid tax and end up cash poor, overly committed or doing questionable things. The goal of an educated investor is to maximise your cash and equity at the end of day. Minimizing your tax is certainly part of that, but only as a tool, not a goal. Trying to reduce your tax payable to zero is not an investment goal, it is an ideaological goal.
 
What i have done previously is this:

I own the company so can pay myself whatever wage i like.

Toward the end of financial year i can closely estimate company profit and therefore the amount of tax to be paid and i also know my personal property losses from depreciation deductions.

My property portfolio has been cash flow neutral (or slightly +ve) but negative geared due to depreciation losses of approx. $60k.

So, close to the end of the financial year i pay myself an extra 'top up wage'/ director fee/bonus of $60k from company profits and this gets 'eaten' by my personal depreciation deductions.

So, the end result is company avoids all or extra company tax and i increase my 'wage' by $60k but avoid paying additional tax on that amount. Basically its just `tax free cream off the top :).

Note: The $60k is only an example to illustrate the strategy.
 
I agree with MRY

I think the main point is that workers think about income and how to minimise tax.
And the rich think about asset growth.

If you earn an income - you pay tax
Equity Growth is the same as money deposited in your bank acc. It is much easier to have 50k growth every year than to go and earn it every year and pay tax. The trick is how to turn equity into cashflow.

Tax no longer becomes a problem or an issue if your main focus is equity growth, and how to achieve it. You don't need the answers of how to pay nil income tax because you are no longer in that system.(unless you want to be)

Cheers Bushy
 
What i have done previously is this:

I own the company so can pay myself whatever wage i like.

Toward the end of financial year i can closely estimate company profit and therefore the amount of tax to be paid and i also know my personal property losses from depreciation deductions.

My property portfolio has been cash flow neutral (or slightly +ve) but negative geared due to depreciation losses of approx. $60k.

So, close to the end of the financial year i pay myself an extra 'top up wage'/ director fee/bonus of $60k from company profits and this gets 'eaten' by my personal depreciation deductions.

So, the end result is company avoids all or extra company tax and i increase my 'wage' by $60k but avoid paying additional tax on that amount. Basically its just `tax free cream off the top :).

Note: The $60k is only an example to illustrate the strategy.


excellently done!
 
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