Investment Strategy: Your 2015 End of Financial Year Guide

The End of Financial Year (EOFY) provides a good opportunity to consider strategies that can save you tax and maximise your investment returns.

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The lead up to the End of Financial Year (EOFY) provides a good opportunity to review your wealth creation plans. You may be thinking about strategies to reduce your tax liability, however, before acting, you also should consider the impact on your longer term wealth creation and protection requirements.

At NAB Private Wealth, our collaborative approach ensures you receive comprehensive advice and solutions tailored specifically to your individual needs. We can draw upon the expertise and offerings available across the NAB Group, as well as from our select external partners, to provide tailored advice and solutions. We can also work with your registered tax agent, solicitor and other professionals to implement solutions for you.

Consider the following strategies:

Holding your investments solely in your personal name may not be the most tax effective way to structure your family’s assets

Where you hold family investments in your own name, you will be paying tax on investment earnings and realised capital gains at your marginal tax rate of up to 49%. Alternatively, you may want to consider family discretionary trusts which would require advice from your registered tax agent and solicitor.

If you are a member of an employee share scheme, consider transferring ownership of the shares to your spouse if they have a lower marginal tax rate or a family trust at the end of the cessation (or vesting) period (if eligible). However, you should consult a registered tax agent to determine the tax implications for you of this strategy.

Superannuation remains one of the most tax effective ways to build wealth and save for retirement

One of the key benefits of super is that earnings are taxed at a maximum rate of just 15%, instead of at your marginal tax rate of up to 49%, when investing outside super. If you are an employee, you may want to salary sacrifice by contributing some of your pre-tax salary (or a bonus) directly into superannuation rather than receive the money as cash.

If you earn less than 10% of your income from eligible employment because you are either self-employed or receive the majority of your income from ‘passive’ sources such as investments, you may be eligible to make personal super contributions and claim the contributions as a tax deduction.

Build your wealth over the longer term with borrowed money

An effective way to build long-term wealth is to borrow money to invest in assets such as shares and property. Known as gearing, this strategy can enable you to make a larger investment than you otherwise could if you relied exclusively on our own capital, while loan interest and certain other expenses are generally tax-deductible.

As you build your family’s wealth, it becomes increasingly important to protect your assets and earning capacity

 Before you purchase insurance in super, you need to be aware that contributions made to fund the premiums will count towards the relevant superannuation contribution cap. Also you may need a higher sum insured to account for tax that could be payable on death benefits to your beneficiary/s. When buying TPD insurance in super, it’s also important to consider how the policy defines total and permanent disability and whether this could impact when you would be able to access any insurance benefit paid into your super fund.

Income protection insurance provides up to 75% of your income should you become unable to work due to illness or injury. Income protection insurance premiums are generally tax deductible whether funded within or outside super (but at different rates). But if you take income protection in your own name (outside super), you can pre-pay a year’s worth of premiums and may be entitled to a tax deduction in the current financial year that would otherwise be tax deductible in the following financial year.

Giving back: an important issue to consider

The end of the financial year provides a good opportunity to consider new philanthropic intentions and strategies or to review existing ones.

A charitable endowment fund (CEF) is a public ancillary fund designed to make it easy for you to manage your philanthropic giving and offers the following benefits:

  • Tax deductibility: You are entitled to claim a tax deduction on most donations you make through a charitable trust that is a deductible gift recipient, including the opportunity to spread deductions over a period of up to five years.
  • Timing: You can make extra contributions at any time, so you can take advantage of tax year timing.
  • Tax benefits: Charitable trusts can enjoy tax exempt status, boosting the annual returns available for distribution to charities.

Please note that NAB Private Wealth is not a registered tax agent or registered tax (financial) adviser. If you intend to rely on this general information to satisfy liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, you should seek professional advice from a registered tax agent or registered tax (financial) adviser.

For full details on strategies and conditions, download the full article here: