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Tax-effective investment options

Determining where to invest requires multiple factors to be taken into consideration. One such factor may be tax efficiency. The tax charged on income from a tax-effective investment is less than the individual’s marginal tax rate.

Superannuation

The government provides incentives to save through Super, which make it one of the most tax-effective investments. Contributing to your super and salary sacrifice is only taxed at 15% if yearly income is under $250,000 (30% if over $250,000 which is still tax-effective). The maximum tax that can be charged on investment income in super is 15%, and 10% on capital gains. This is lower than marginal rates at which taxation occurs for most individuals.

Employees should ensure that contributions are not above $25,000, as this is the cap on concessional contributions. Additional tax needs to be paid on any amount claimed higher than the cap.

Insurance Bonds

Insurance companies offer insurance bonds as long term investment options. Earnings in an investment bond are taxed at 30% (Corporate tax rate), which makes them tax-effective for those whose marginal tax rate is above 30%. They are further tax-effective if one is looking to invest for over 10 years. This is because although withdrawals can be made during the 10 years, if no withdrawals are made, no further tax is payable.

The ATO warns against tax-driven schemes, which offer tax concessions for investing in certain assets that provide income in the future as these may be high risk or part of a scam. Investing in superannuation or insurance bonds are safe and reliable methods which don’t pose these concerns.

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News

What to do with your Lost Super

March 19, 2021

After COVID 19’s impact on the world, an influx of employees who had lost their jobs fell into the job market. Many of these came from companies that couldn’t afford to continue their employment. As a result, many individuals had to seek alternative employment, or draw from their super. Some individuals took on multiple jobs to pay bills, and others drew from the super that they had accumulated in the government’s early release scheme specifically for coronavirus related income loss.

Super is held by superannuation funds, and accumulates as a result of how much super an employer pays to the employees’ funds. Many Australians may find that they actually possess multiple super accounts as a result of having “lost” their super accounts during changeovers. It can also happen as a result of changing names, moving addresses, living overseas or changing jobs.

Australians can use the ATO’s online tools to:

As superannuation funds often have fees associated with their upkeep, as well as insurances that may be tied into it (such as life, total and permanent disability and income protection), it’s important to consult with providers before accounts are consolidated.

https://www.ato.gov.au/Individuals/Super/Growing-your-super/Keeping-track-of-your-super/#Lostsuper