For example, on 31st December 2001, you purchased 9 stocks - Flight Centre, Commonwealth Bank, James Hardie, John Fairfax, Billabong, Qantas, Ten Network, Telstra and Woolworths - to the value of $83,542.40 and you held those stocks until 31st January 2010.
This share portfolio would have increased in value to $111,278.60 - an increase of 33%.
This is good news, but it is not the entire story.
On top of the underlying growth of your investment and the income you receive from your shares (in the form of dividends), do you know how your investments will impact on your tax return?
A simple strategy, such as gearing can make your money work for you and help reduce your tax. Gearing relates specifically to the money you borrow to fund your investments.
Below is a simple scenario showing the difference between investing and not investing.
Based on an income of $50,000 pa with no other income or deductions, you would currently be paying about $9,600 in tax, inclusive of the Medicare levy.
However, if your investment strategy takes into account gearing, the amount of tax you would pay would be reduced to approximately $7,575 – a saving of about $2,025 in tax, while at the same time, your net income increases by $3,033.
The points to highlight are:
1. Investments will reduce your tax liability
2. Geared Investments will create a tax saving
Where to from here? Many of our clients are becoming aware that the end of financial year is looming. As shown above, it is important that you speak with a knowledgeable financial adviser on the best strategy for your circumstances to reduce your loss to the tax man.
For more information, visit www.intellichoice.com.au or speak to our financial planners on 1300 55 10 45 or email info@intellichoice.com.au.
Disclaimer: This column is provided as general advice only and does not take into account your personal objectives, financial situation and needs. You should always carefully consider these matters and discuss them with a financial planner before you act.
