Who pays next to nothing in tax?

[Mamaof3]

We're 25 days into 2008 and we've achieved our 2008 goals already and pretty chuffed about it

Our focus has always been to make more money not try and save (although a bit of savings aint a bad thing) but as someone mentioned in an earlier post, i'd be silly for paying more tax than what i have to. If we're making the same amount of money as another investor but the other investor is able to bring his tax bill down to almost nothing, then i think it would be very silly of me to not try and do the same...same income, same business, just us paying more tax then them

I'd be the first to say i'd be happy the day i pay $1M in tax because that just means i've made a hell of a lot of money

thanks for the replies thus far though.

This might seem like a silly question but just with the example Evand gave about paying himself wages as Director, would this be pointless if the Director is already receiving an income which puts him in a high tax bracket, won't the extra income or 'bonus' from company profits push him to the top tax bracket hence defeat the whole purpose? Sorry, get the jist of the theory but still a little confused! Seeing accountant on Tuesday so might ask him if hubby can start getting a bonus from Company's profits!

Thanks for the feedback guys & girls!

cheers,
Kim

 

[davewill]

Not that we invest in property or shares just for the tax break, but I find that a conservatively geared share portfolio generates cash income (with franking credits) and good tax deductions without having to make any loan repayments.
Our aim is to have a gearing of about 60%, even with the drop in the market last week we didnt receive a margin call .
We use this extra cash flow to service property purchases, and live a fairly good lifestyle.
Dave
BTW due to the franking credits, depending on any capital gains I usually pay no tax and still get a few thousand dollars back.

 

[burty85]

Made about a Cool $75'000 without paying a cent in tax overseas in a stinking hole of a country called iraq, so for the next 5 months left in this yr i be in a lower income braket and with my ip shouldnt be paying much this yr in tax

 

[yo yo ma]

Hi burty85
I am in a similar situation working overseas... You still have to declare the $75k on your tax return under "exempt overseas income"; see link below. You will not pay tax on this amount but it does count towards your income in Australia, which will put you into a higher income bracket for any Australian earnings. Have you checked the information with your accountant?

The ATO states that "exempt foreign income will not be included in your assessable income but it will be used to help determine the rate of tax payable on your assessable income." You can also find more information in this booklet from Bantacs.

 

[WASP]

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???

We'd be interested as well

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!

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

Say you're in the negative then, what other benefits are there?

centrelink?

 

[Rixter]

Say you're in the negative then, what other benefits are there?

centrelink?

Low income rebate .

 

[Pushka]

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!

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

So this means you are heavily negatively geared then? So the review on taxes, if they scrapped it would hurt you badly? I know it would hurt us. Didnt know about the carry over of tax losses though. That would help offset CGT when you sold.

 

[DavidMc]

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???

Don't forget plenty of people 'exaggerate' their positions... to some people it makes them feel good to say 'I earn 200k and pay literally nothing in tax'. Literally might also be 15%.

 

[Rixter]

So this means you are heavily negatively geared then? So the review on taxes, if they scrapped it would hurt you badly?

When you LOE there is no income tax to pay in the first instance.

 

[namtrak]

I never quite get the obsession with reducing the tax bill. Sure we negatively gear stuff and get a good return each August, but at the end of the day a dollar in the hand is worth more to me in real terms than a dollar returned by the tax office.

This is your conscience speaking - where would we be if everyone ended up not paying taxes? Hospitals, roads, schools etc? The money needs to come from somewhere.

 

[Rixter]

I never quite get the obsession with reducing the tax bill. Sure we negatively gear stuff and get a good return each August, but at the end of the day a dollar in the hand is worth more to me in real terms than a dollar returned by the tax office.

Exactly. Investment is not about taxes.

This is your conscience speaking - where would we be if everyone ended up not paying taxes? Hospitals, roads, schools etc? The money needs to come from somewhere.

And where would 30% of the population live without private investors? The government actually saves & makes money from providing tax incentives to investors.

 

[Aaron Sice]

i am self employed.

i run a trust to invoice my clients up to $152k per annum, of which $1000 goes to each of my kids tax free (2x) and my wife and i get to split the income up to $75k each.

after that, the company invoices so my tax is capped at 31.5% after $150k.

now, deduct an neg geared IP and a portion of the mortgage/rates/bills/phone from our PERSONAL incomes and you can see how that will come down pretty quickly.

then take 15% depreciation and 80% running costs of a car from the business - i have upgrade this FY so i get 15% across 2 cars.

then a tax deduction for money i put into shares, education, courses and investments.

all of a sudden i'm down to about $20k in tax payable for a little over $200k in income - or around 10%. as a PAYG or simple ABN holder, my tax on $200k would be a whopping $75k minus any pissy deductions you may have.

so you can see, structuring is more than worthwhile. that's over $50k a year more in my pocket and not in 3 dole bludger's little hands to spend on pot and foxtel.

 

[namtrak]

.....that's over $50k a year more in my pocket and not in 3 dole bludger's little hands to spend on pot and foxtel.

Good for you, and that means that half a dozen checkout chicks earning about $25k a year, are expected to carry the extra $50k burden you belay onto the tax system (all legal - no questions at all) to pay for some other basic services like hospitals, roads etc. We want to live in free enterprise society but we don't want to meet our public service obligations, the assumption that every welfare recipient is a bludger is just the cynical product of people who spend too much time watching commercial television.

We manage to generate a combined income of around $170k, have two IP's, some managed funds, extra kick into some super, run two small businesses and pay our fair share of tax (also legal!!)

What is the logical extension of tax minimisation? If everyone one in Australia started diversionary trusts, minimised PAYe tax and still consumed at our current rate the country's infrastructure would self-immolate in a single generation. Capital infrastructure rides on the backs of those who pay tax, not those who minimise it.

 

[redwing]

I never quite get the obsession with reducing the tax bill. Sure we negatively gear stuff and get a good return each August, but at the end of the day a dollar in the hand is worth more to me in real terms than a dollar returned by the tax office.

This is your conscience speaking - where would we be if everyone ended up not paying taxes? Hospitals, roads, schools etc? The money needs to come from somewhere.

Hi Namtrak,

With Rixter holding about 10 properties, he's probably paid a *whack* of Stamp Duty (as have most of us); I recall mention in one of his books or articles about many years back about Rory O'ROURKE being in the 0% tax bracket but paying over $100k in Stamp Duty for that year

You may escape a tax, but not all of em...they still get you

 

[namtrak]

being in the 0% tax bracket but paying over $100k in Stamp Duty for that year

You may escape a tax, but not all of em...they still get you

.....yes your right, and I do sound terribly sanctimonious and hypocritical - we do try and minimise our tax as well. However at the end of the day PAYe tax accounts for about 60% of government revenue, GST about 25% and property about 12%. In other words, the punters carry the can to the tune of about 85% of governments taxation income.

 

[steveadl]

.....yes your right, and I do sound terribly sanctimonious and hypocritical - we do try and minimise our tax as well. However at the end of the day PAYe tax accounts for about 60% of government revenue, GST about 25% and property about 12%. In other words, the punters carry the can to the tune of about 85% of governments taxation income.

That equals 97% - where does company/business tax fit? If it's together with PAYe, then I'd say personal income taxes would be a lot less than the 60% figure.

 

[namtrak]

Total Taxation Revenue

Payroll tax amounts to about 2% I think, but of course I could have all this arsed up

 

[steveadl]

Thanks for the link Namtrak.

Fair bit of info. but as best as I can make out:

MAJOR COMPONENTS OF TOTAL TAXATION, All levels of government
Taxes on income
Income taxes levied on individuals 37.5%
Income taxes levied on enterprises(a) 21.2%

So normal wage earners account for around 38% of tax revenue.

 

[Seaview]

I would not feel the need to reduce my tax if there was a level playing field i.e. a flat tax rate.

It is grossly unfair for high income salary earners, slogging away for 40+ hours a week to be penalized for their effort with a higher tax rate.

Why should they pay a higher percentage of tax than the check-out chick when they work just as hard?

Just because this dumb idea has been around for a while does not make it right. It is a big disincentive to work hard and stay in the work force.

No wonder our brightest and best head overseas. Who wants their hard earned income stolen to subsidize those who earn less.

You cannot seriously begrudge them for using their intelligence to rectify this injustice and minimize their tax.

Most people don't mind paying their fair share of tax, but our system is NOT FAIR.

 

[ianvestor]

Seaview, I completely agree.