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4 popular deductions

Below are the four topics we get asked the most about at tax time by clients who are trying to increase their wealth and save on tax.

It is very important to get advice on the following before deciding they are right for you. In some cases they may not be suitable to your circumstances and may even leave you worse off if not approached with the proper level of understanding.


Private health         

The Medicare Levy Surcharge (MLS) is a Federal Government initiative to encourage individuals to take out private hospital cover, and where possible, to use the private hospital system to reduce the demand on the public system.

The MLS is levied on Australian taxpayers who do not have private hospital cover and who earn above a certain income. Holding Private health cover may reduce your Medicare surcharge levy amount. 

If you are considering Private Health cover or already hold some make sure you talk to your Power2 Tax Consultant about the potential tax savings.


Income protection

The main purpose of this type of insurance is to make sure you and your family are not financially disadvantaged due to your wage ceasing when you are injured or ill.

In most cases income protection pays a monthly benefit to help replace your lost income. The cost of cover varies depending on factors such as age, occupation, smoking status and existing medical conditions. There are also a number of options available relating to waiting periods and benefit periods which alter the cost.

In most cases income protection premiums are tax deductible and policy payments are assessable income.

A Power2 Financial Planner can help you to understand what insurance is right for you as well as the costs and benefits. 


Negative gearing

Gearing simply means borrowing money to buy an asset such as Property or Shares. Negative gearing means that the interest you are paying on the loan (along with other expenses) exceeds the income from the investment.

Here is an example:

  • Your purchase a $440,000 investment  property with a $400,000 loan
  • You make annual repayments of $33,925 of which $28,000 is interest in the first year (at 7%).
  • Other expenses for the year add up to $5,000
  • $430 per week in rent adds up to rental income for the year of $22,360.

So you have annual deductible expenses of $33,000 ($28,000 + $5,000) but income of only $22,360 (rent) which means there is a shortfall (a loss) of $10,640 for the year.

Depending on your other income the $10,640 loss incurred could lead to a refund of up to $5,000.

It is important to understand that even after any tax refund negative gearing still results in an annual loss. The investor is simply hoping that the growth in their assets value over time will be more than their annual loss in income.

If you would like to understand how negative gearing could affect your situation speak with a Power 2 Financial Planner.


Superannuation

Superannuation is a way to save for your retirement. The money comes from contributions made into your super fund by your employer and, ideally, topped up by your own money. Sometimes the government will also add to it through co-contributions and the low income super contribution.

For most people, super will be taxed at a lower rate than a similar investment outside super and making contributions can significantly reduce the amount of tax you pay.

Of all the different ways to increase your assets and reduce your tax burden we believe superannuation provides the most efficient vehicle. 

In some cases you can also hold death, disability or income protection insurance through your super account at a cheaper price and more tax effectively than if you bought it outside of super.

There are many different strategies available related to superannuation that can significantly increase your assets and reduce your tax. Talk to a Power2 Financial Planner about the ones that suit you.