Wealth Protection Advice

Congratulations, you have built your wealth, financially you are in a strong position, and life is good. Now, what do you do to ensure you keep it?

By implementing a wealth protection plan early, you can take a proactive approach to protect your assets, reduce your risk exposure, safeguard your wealth, and secure your financial future.

Estate planning

Wealth Protection Strategy

No single wealth protection strategy can provide complete protection, but a combination of various strategies can help you manage risks. Ensuring you have appropriate business and personal insurance coverage can help protect you from the effects of unforeseen events. You should also take steps to optimise the corporate structure and banking arrangements within your wealth portfolio to maximise wealth creation while minimising the potential risks to your assets.

Comprehensive estate planning should form a fundamental part of your wealth protection plan. This will ensure your financial legacy is maintained and transitioned according to your wishes while avoiding potential disputes, payment delays, or tax implications.

Book a complimentary chat with one of our expert team. We’re here to help.

asset management

Corporate structuring

Separating assets and reducing risk exposure through appropriate corporate structures, such as ensuring capital appreciating assets are not owned in the same entity as a trading enterprise.

Discretionary trust to distribute income

A discretionary trust offers trustees wide discretion to determine whether distributions will be made to the beneficiaries. Trustees can add beneficiaries as needed. Beneficiaries of discretionary trusts have no interest in the trust property unless the trustee exercises its discretion to distribute to them.

These trusts give the trustees a wide scope in terms of distributing income and capital among the beneficiaries. Depending on their needs, they may want to adjust these distributions, or even terminate them altogether. This makes them a good option for those who want a certain amount of flexibility with how their assets are managed.

There are many considerations to take into account when considering a discretionary trust for your business or personal investments, but it’s an excellent method for maximizing flexibility, control and privacy. For any high-net-worth individuals who want to pass their businesses on to the next generation, this structure is attractive because of its dual taxation and planning opportunities

Tax minimisation strategies

Because there is no one-size-fits-all approach to tax planning, it’s important to discuss your personal circumstances with a qualified professional to determine the best course of action. By reducing your taxable income and spending less on taxes, you’ll be able to keep more money in your pocket.

Tax is unavoidable. It affects every aspect of your personal finances—from income to investments, superannuation, home loans, assets and the wealth you leave for future generations.

It is possible to take steps immediately to avoid paying unnecessary taxes at the end of the financial year. These tips may not be suitable for everyone but are worth considering as an overall financial strategy. Discuss them with a tax accountant if you are unsure.

Maximising your allowable tax deductions

If you are an employee, you may be able to claim a tax deduction for certain work-related expenses. To do so, you must have spent the money out of your own funds and not been reimbursed by your employer. The expenses must relate to your earnings as an employee; for example, if you travel to work every day, you may be able to claim the cost of public transportation as a deduction. Keep track of all expenses in case they are questioned by the ATO.

Expenses you may be able to claim:

  • Car expenses and travel costs, be sure to keep receipts, as they’re necessary for claiming reimbursements.
  • You may be able to claim a deduction for occupation-specific clothing, uniforms and protective gear.
  • Because of COVID-19, there are special rules this year for employees working from home. To claim the ATO special rate, you will need records of the hours you have worked from home.
  • Self-education expenses-some employment-related deduction expenses can be claimed on your return.
  • Tools and equipment, items related to your work that are necessary for you to do your job well, may be tax-deductible. Examples include small tools of the trade, protective gear, professional references, and work-related laptops.

Reducing your capital gains tax liability

You can minimise the CGT you pay by:

  1. Holding an asset for more than 12 months
    • If you make a capital gain from the sale of assets held for more than 12 months, you may be entitled to a 50% discount on CGT. For example, if you sell shares that you have held for longer than 12 months and you make a capital gain of $3,000, you will only be charged CGT on $1,500 (not the $3,000 gain that you actually made).
  2. Offset your capital gain with capital losses
    • You can use capital gains from prior or current years to reduce a capital gain and therefore the amount of CGT you need to pay.
  3. Increasing your asset cost base
    • A reduction in the cost base is a reduction in the capital gain, and therefore CGT liability. You are entitled to include not only the purchase price of an asset in your cost base, but also associated costs of acquiring and disposing of it (such as real estate agent fees), and any holding costs (such as rates, repairs and insurance premiums).
  4. Revalue your property before renting it out
    • If you decide to use your residential property as an investment property, get it valued before renting it out. You will only be liable for capital gains tax on the gain you make from that point forward, not on the gain from when you first bought the property.
  5. Utilise small business CGT concessions
    • If you are a small business owner and sell a depreciating asset, you may be eligible for several small business CGT concessions.
  6. Seek professional tax advice – Australian tax law is complex. It’s important to understand that tax minimisation is a legal and sensible financial strategy, while tax avoidance is not and can carry heavy penalties.

Tips for success

Purchasing assets in your partner’s name

When people buy property together, they often register the title in both names. This is particularly common if the property is intended to be occupied by a couple or married persons.

When buying an investment property, it is possible to put the title in only one person’s name.

This can be advantageous if you are buying with a spouse or partner because capital gains tax is payable when you sell a property that is not your family home. Capital gains tax is calculated as part of your annual income in the year the gain is realised. If the property is in the name of the partner who has low or no income, less tax could be payable than if the income from the capital gain was shared with the partner with a higher income.

Negative Gearing

Negative gearing is when you make a loss on your investment. This can occur when the expenses of the asset are greater than the income derived from the asset. It is frequently used in relation to real estate investments, however, can also apply to any type of investment.

Negative gearing allows an individual to deduct their loss against other income, such as salary and wages. The Australian tax system operates on the basis that people pay tax on their personal income, less any deductions. This is similar to how business profits are taxed – that is, tax is levied on the net profit of a business, not its gross revenue.

When you buy a property or shares with the intention of holding them for some time and selling them at a higher price, it may make sense to have some negative gearing. This might mean paying more for the asset than you expect to get back from capital gains when you sell it. That’s because capital gains are taxable in Australia, but interest on loans isn’t. This means if your income is slightly lower than expected, it may still be worthwhile as long as the capital gain is larger than any paper loss resulting from negative gearing.

Some people might also find themselves unexpectedly in a loss position. If you incur higher expenses or lower returns than anticipated, your losses may be higher than you originally budgeted for.

Many non-tax factors drive people to gear property investment negatively – for example, perceptions about the advantages of negative gearing and a bias towards investing in ‘bricks and mortar’, especially under certain market conditions, both of which might be fuelled by advice from property investment advisers and the media. Of course, there may be other non-tax factors too – for example, community, social or family benefits.

Insurance

Income protection

Income Protection Insurance is designed to give you financial security in the event of a serious illness, injury, or disability with monthly income payments. You can usually choose how long you will need to wait before the benefit payments commence and how long it will be paid for.

Choosing a longer waiting period, during which you have time to pay more in the way of premiums, and a shorter benefit payment period can reduce your premiums, in some cases, significantly.

The length of time you must wait to receive your “income” depends on the type of benefit and on how much you have paid into the policy. It may be as little as two weeks or as long as two years.

Taxation tips

How to minimise your tax bill in Australia

Select the correct Structure

Every business, investment and job opportunity is different, so you will need to work out which structure is best for you to operate or invest through. Is it a Company or a Trust, an Individual or a Partnership, or maybe even through your Self-Managed Super Fund?

The tax rate that is applied to a taxable income amongst each entity differs considerably. The individual and the partnership is from 0% to 47%, the company rate is between 26% and 30%. The Trust rate is from 0% to 47%, and the Self-Managed Superfund is 15%

Timing matters

To reduce your tax liability, you should plan the timing of your income and expenses. This includes things like interest on savings accounts, dividends from shares and rent payments. If you receive income at different times over the course of the year, you may want to consider having more of it paid at a time when its value is greater. On the flip side, if you need to claim certain expenses at a certain time, there is a possibility that this could be claimed in advance.

Deferring income is one of the most common strategies for tax minimisation and is often undertaken by larger companies with stable cash flows. By deferring income, you can pay less tax in the current financial year and receive a smaller refund from the ATO. However, this process may affect your return next year as the money becomes due earlier. In addition, if you need to access the funds for business purposes before they are taxed, you risk paying additional tax if it’s withdrawn before 1 July.

Frequently asked questions

Find quick answers to common questions using our helpful FAQs.

When can I access my superannuation?

When you reach your preservation age and retire, you can access your super to fund your retirement.

You can also access your super:

  • when you turn 65 years old
  • under the transition to retirement rules (if you are eligible), while you continue to work.

You don’t have to cash out your super just because you’ve reached a certain age, however, you need to check if the rules of your particular super fund specify otherwise.

Your preservation age is not the same as your pension age. Your preservation age is the age you must reach before you can access your super and depends on when you were born.

The tax payable on super benefits depends on a number of things, including:

  • your age
  • the amount of the payment
  • whether you receive your super benefits as a super income stream or a super lump sum
  • whether your super comes from a taxed or untaxed source.

Some super benefits have a tax-free component and a taxable component. The tax-free component generally includes:

  • amounts you have contributed to your super fund without claiming those amounts as a tax deduction
  • certain other tax-free amounts you may have rolled into your super fund.
How much should you have in your super when you retire?

ASFA estimates that the lump sum needed at retirement to support a comfortable lifestyle is $640,000 for a couple and $545,000 for a single person. This assumes a partial Age Pension.

ASFA estimates that a modest lifestyle, which covers the basics, is mostly met by the Age Pension. They estimate the lump sum needed to support a modest lifestyle for a single or couple is $70,000.

However, this might not be enough for you, it is important to seek advice on this with a Financial Planner; the team at OakView Financial can sit down with you and work out your required balance to meet your retirement needs.

How much super do I need to retire on $60 000 a year?

It’s fair to assume that the average Australian might hope to live comfortably, if not lavishly, in retirement.

The widely reported ASFA Retirement standard suggests couples can enjoy a ‘comfortable lifestyle’ on around $65,000 a year. It stands to reason then that a single person should be able to live more than comfortably on $60,000.

If $60,000 a year sounds like your kind of retirement, the next step is to work out how much super you will need to fund it. That’s where our expert team comes in. 

How much superannuation does the average person retire with?

The Association of Super Funds Australia (ASFA) latest report states the average superannuation balance required for a comfortable retirement is $640,000 for a couple and $545,000 for a single person. This assumes you will withdraw your superannuation as a lump sum and receive a part Age Pension.

However, the average superannuation balance of a 60–64-year-old Australian is $359,870 for men and $289,179 for women. This, unfortunately falls short of the required amount needed to live a comfortable retirement.

The good news is that you still have time to change these numbers; time in the market beats timing the market. By working with a Financial Planner, you can employ strategy’s to boost your superannuation so you can hit all your retirement goals and live that well-deserved comfortable retirement.

What is superannuations transfer balance cap?

The transfer balance cap is a $1.7 million transfer balance cap on the amount of money you can shift into a super pension account. Excess amounts will need to remain in a super accumulation account or outside super, where earnings will be taxed. The interaction of the transfer balance cap with other income and investments can be complex, so we advise you to seek professional advice.

The $1.7 million cap applies to individuals, which means a couple could have up to $3.4 million in individual accounts. However, if a couple has one account between them in a single name, the $1.7 million limit applies.

How much money can you have in the bank and still get the pension in Australia?

The Department of Social Services reviews the eligibility for the Age Pension each year, increasing the upper limits to scale with inflation. Australian Parliament may also introduce policy changes to the limits, it is best to review your retirement strategy with your Financial Planner each year to ensure you are always taking advantage of the best outcome.

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