Tips & Strategies

Not all income is taxed equally

Certain classes of income have in-built tax advantages, like franked dividends.

R leong Co - Not all income is taxed equally

Investing in shares that pay franked dividends mean the income you receive will have an in-built tax credit of 30%.

That means that if you are on a marginal tax rate of 30%, you will receive this dividend completely tax-free. And if you have tax rate lower than 30%, you’ll actually receive a refund of the difference between 30% and your tax rate. Conversely, you’ll pay the difference between your tax rate and 30%, if your tax rate is higher.

Also, if you hold your investment for more than 12 months, you will only be taxed on 50% of the capital gain. In other words, if you choose wisely you could be getting tax-free income during the life of your investment, and then only paying half the CGT (capital gains tax) when you sell!

Sounds good, hey?

R Leong Co Sold Sign

Alternatively, certain investment properties (such as residential property constructed after 1985) attract a special deduction of (mostly) 2.5% per year of the cost of construction.

This too gives you some shelter from tax, as this could translate to thousands of dollars of tax deductions that you can claim each year.

Compare these types of income above to receiving interest income from say, a term deposit.

A word of caution; your investment decisions should not be based solely on the tax considerations.

About the Author

Roland has more than two decades experience as a professional accountant, business and financial adviser, including Australian Taxation Office experience. He has also presented in a number seminars, appeared on radio, and is a published commentator for a number of industry publications.

Roland holds a Bachelor of Economics (Syd), and also holds the designations of Chartered Accountant, CPA, and Financial Planning Specialist.

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