Everyone wants to pay less in taxes — including the rich.
This is much easier when you employ the services of a qualified Chartered Accountant, who keeps up with changes in the tax code and knows which might apply to you. A lot of the responsibility falls on behalf of the Chartered Accountant, who specialises in tax minimisation and complex tax strategies for high net worth individuals and corporations.
Below, I outline six strategies the Accountants of high net-worth individuals use to minimise tax bills — some common, some less so.
1. They max out Concessional and Non-Concessional Superannuation Caps.
One of the most common tax-minimisation strategies high net worth people use is one to which people of all income levels have access: contributing the maximum amount to their superannuation funds.
In fact, it’s so simple that people miss it all the time. Why aren’t high net worth individuals maxing out their super contribution caps from their employer?
With complying superfunds come tax benefits. Concessional super contributions (capped yearly $25,000 in 2018 financial year) are funded with ‘pre-tax’ dollars that decrease your taxable income. Provided you don’t need the funds and are willing to lock it away for retirement, potentially you could have a $25,000 tax deduction.
2. Rental Properties – Obtain a Quantity Surveyors’ Report
he rich often have negatively geared rental properties to reduce their taxable income, to increase the allowable deductions they obtain a Quantity Surveyors’ Report which allows them to increase the depreciation deduction every year, in general terms, it costs approximately $600 to obtain and would allow thousands of dollars more in depreciation for multiple years.
3. They donate to charitable organisations
Donating to a charitable organisation before the end of the financial year is another way the rich reduce their tax, but remember, the ATO requires receipts to be kept and the organisations must have DGR status for the donation to be tax deductible. The ATO always keeps an eye out for tax returns with large donation deductions so be careful!
4. If they’re self-employed, they start the business off as a sole trader
The rich often start their business as a sole trader (provided business risks are manageable), then move the activity to a tax effective structure just before they break even, provided they don’t fall foul of the ATO’s non-commerical loss provisions, the losses in the first few years of business can be offset against their taxable income and because the activity has made a loss thus far, the market value of the transfer from themselves to the new structure would be NIL, however asset transfers like client lists, etc needs to be reviewed for possible CGT issues.
5. Income Protection Insurance
One of many reasons the rich stay rich is they mitigate risk and are willing to pay to keep these risks low, income protection insurance is a deductible expense which pays out should they ever lose their source of income.
6. They have a close relationship with their Accountant
Most taxpayers only see their Accountant once a year, after the financial year ended, which shuts down several potentially lucrative tax minimisation opportunities. This is due to the fact on a personal individual level, assessable income and deductions are on a cash basis, unless it was actually paid in the year then it would be included in your tax return (there are exceptions), often the best tax minimisation strategy involves bringing in your Accountant when you make the transaction e.g. the purchase of a major asset could be restructured in a tax effective manner.
Before the end of the year the rich would have a meeting with their Accountant to go through and make sure they have deferred income or prepaid expenses to reduce their tax.
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