I remember when I first started my career as an accountant (to clarify I was an entrepreneur first and accountant second) I always wanted to be rich. So here I am as a 19 year old junior accountant doing tax returns for multi-millionaires. This got me thinking; what are they doing that I’m not? The answer, well first they’re like 40 years older than me, but seriously the difference is they have more complicated tax returns. Their tax returns are complicated because they have income coming in from a variety of different sources. Where as mine had salary and wages, and some interest if I was lucky. You’ll find that anyone with just salary and wages in their tax return is probably not wealthy (even if they make $1,000,000 a year), this is because they do not have any investments generating income for them.
Now before the tax-nerds chime in and start saying things like, “What if they’re channelling money through a discretionary trust to their children or spouse?” or “What if they’re salary sacrificing to reduce their taxable income?” I will say, there are several strategies your can implement to “optimise” your tax position. You need to thinking about tax when you're earning; say over $37,000 and it’s time start thinking about tax and $80,000 it is definitely time to do something! If you need advice get in touch with me and we can develop a plan. In the meantime, let’s keep this blog it simple for illustrative purposes.
So let’s look at tax form and look at the types of taxable income we can get our hands on:
Salary & Wages
This is what you get paid for rocking up to work on time, and selling your labour.
Employer Superannuation Contributions
This is the 9% of your gross salary that the government makes your employer contribute to your superannuation fund. It still counts as income, even if you don't get to spend it!
Allowances, Earnings, Tips, Directors Fees:
• Allowances from your Employer (Car, Travel, Meal, Uniform etc)
• Directors Fees or Board Sitting Fees
• Commissions on product sales
• Bonuses on performance (or because you’ve got a great boss)
• Tips from customers
Fringe Benefits
This includes those perks that your boss gives you that aren’t paid in cash, but have cash value such as:
• Company car
• Free rent
• Free car parking
• Other free stuff of significant value
Interest
This money comes from the bank who pays you for keeping money with them.
Dividends
This money comes from companies pay you for owning shares in them.
Partnership Distributions
This will usually be from business activities or farming cooperatives
Trust Distributions
This money comes from listed trusts on the stock exchange, managed funds or your own private trust.
Business Income
This would be the net profit from product sales, service fees, hiring fees
Rent
This is money you are paid for owning real estate and renting it out to someone else.
Capital Gains
This is the profit you make on selling investments that have gone up in value such as shares or real estate.
Royalties
This is the money you get if you’re a rockstar or an author, but people have to buy your stuff first.
So there it is, I hope this gives you some ideas on how you can make some money in addition to what ever your earning now.