When I first started in financial planning 20 years ago, I quickly realized that tax planning isn’t just about reducing what you owe—it's about strategically building your wealth using your tax money. Whether you're involved in investment management or simply aiming to make the most of your income, these tax-saving strategies and their alternatives can help you achieve your financial goals.
1. Contribute to Superannuation
‘I’ve seen first hand how superannuation contributions can be a game-changer. By channelling a portion of your income into super, you're not only securing your retirement but also benefiting from a lower tax rate. I've worked with clients who, after maximizing their super contributions, were amazed at how quickly their retirement savings grew, all while reducing their taxable income.
2. Debt Recycling Your Mortgage
Debt recycling is one of those strategies that people often overlook. A few years ago, I worked with a client who had a substantial mortgage and wanted to start investing. We developed a debt recycling plan that allowed him to convert his non-deductible debt into a tax-deductible one, which not only saved him on taxes but also kick-started his investment journey. The results were impressive—he was able to build wealth while managing his tax obligations. Check my article about this topic HERE
3. Obtain Income Protection and Deductible Advice
Income protection insurance is something I always recommend, not just for the security it offers but for the tax benefits as well. I’ve seen clients sleep better at night knowing they’re protected, and they appreciate the tax deductions that come with it. Plus, getting professional advice on how to maximize these benefits can make a world of difference in your overall financial plan.
4. Borrow to Buy Shares
Borrowing to buy shares can be a double-edged sword, but with careful planning, it can work in your favor. I recall advising a client who wanted to diversify his portfolio using borrowed funds. We focused on the tax-deductibility of the loan interest, which helped him reduce his taxable income while expanding his investment portfolio. It’s a strategy that requires careful consideration, but the rewards can be significant.
5. Leverage Negatively Geared Investment Property
Back when I was helping a client who was new to property investment, we discussed the benefits of negative gearing. She was skeptical at first, but after seeing the tax deductions she could claim, it became clear that this strategy could turn her investment into a powerful wealth-building tool. By offsetting rental property losses against other income, she managed to reduce her tax bill significantly.
6. Invest in Depreciation-Eligible Property
One of my clients once purchased a brand-new apartment, and the depreciation benefits were substantial. The ability to claim the declining value of fixtures and fittings led to tens of thousands of dollars in tax savings each year. It's one of those strategies that’s not just about saving on tax—it also keeps your cash flow healthy, which is crucial for managing an investment property.
Avoiding Common Tax Planning Mistakes
In my two decades as a financial planner, one of the most common mistakes I’ve seen is high-income earners buying more income-producing assets in their own name. While it seems like a straightforward way to build wealth, it often leads to higher taxes. A better approach is to consider your overall financial tools and resources and use tax-effective structures like trusts, bonds, or even super funds. This way, your income and gains are taxed at lower rates, helping you keep more of what you earn rather than handing it to the tax man.
If you're ready to explore these strategies and take control of your financial future, I invite you to book a Financial Clarity Meeting with us. Let's work together to develop a personalized financial plan that optimise your tax and maximizes your wealth.
I hope you found this article beneficial. I’m Mo Shouman, a financial adviser with 20 years of experience helping professionals save on tax and grow their wealth. Book your financial clarity meeting below and discover how you can take your finances to the next level. I’m proud to be the only adviser who provides a detailed assessment of your financial position—whether you decide to work with me or not!