What if I told you that I had an investment idea that guaranteed a 16.5% return on investment? Even better, this same investment is tax free when you sell it! You'd probably be asking, what's the catch, right? The catch is; you need to be earning over $37,000 per annum have to wait until your 65 to cash in your investment. That's all.
This investment is not as obscure as you think. In fact most of you reading this will probably already be invested in it. The problem is, most of us aren't making the most of the unique investment. In case you haven't guessed it yet, this investment is superannuation.
For every dollar over $37,000 you are paying 30% income tax plus 1.5% Medicare Levy. So effectively 31.5%. Pre tax "concessional" contributions to superannuation are only taxed at 15%.
If Bob was earning $40,000 per annum, he'd be paying about $6,150 in tax and would be in the 30% tax bracket. If Bob wanted to make a 16.5% return on his savings, he could "salary sacrifice" $3,000 of his wage into superannuation. This $3,000 contribution would be taxed at 15% or $450 tax. His taxable income would be reduced to $37,000 and his tax would be $5,205. This mean his total tax bill from the salary sacrifice strategy would be $5,655 compared to $6,150; that's a $495 tax saving. That saving is the equivalent of a 16.5% return on investment. This 16.5% return on investment extends to the the income this investment earns, but I'll rant about that later.
That's right folks, it's that simple. Well not quite that simple, there are a few rules that you need to follow, so talk to your tax agent or have at read of this ATO Article.
Until then: Innovate or Die.
-Chris Hooper