Tax Planning Can Help Your Cash Flow
IS your cash flow feeling the impact from making a large super contribution as a way of reducing your huge tax bill?
This is common practice.
While your tax bill will be reduced and there will be benefits for you when you retire, it can put a lot of pressure on you and your business now.
Is there a better way? Can you have your cake and eat it too?
By starting to plan at the beginning of the year you are able to get tax deductions that will not have such a large drain on your cash flow. The process starts by looking at your investment plans.
For example, if you are going to buy a building consider doing it through your self-managed super fund.
By making tax deductible contributions to your super fund you use this money to pay off the loan principal with tax deductible dollars. Normally you have to pay off debt with after-tax dollars.
If you do not wish to buy it through your super fund, then make the loan interest only to maximise the tax deductions and preserve your cash flow by not making principle reductions.
Perhaps you want to invest in a lifestyle property. Consider investing in property that is big enough to do small-scale farming on, such as cattle. From a tax planning perspective you need to make sure the farm is large enough to meet the ATO's business guidelines. This way all the costs associated with it, including the loan interest, will be deductible.
It will also mean that provided your net assets are less than $6 million you will be able to sell the property and pay no capital gains tax. ($250,000 restriction)
Another long-term planning approach is to see whether you can gain more of your income through capital gains. …