tax benefits Archives

Spending a Dollar to Save 30 Cents: The Risk of Tax-Driven Investment Decisions

8 April, 202523 April, 2025 Updated on23 April, 2025 Investing, Tax

Australians love a good tax deduction. It’s almost ingrained in us—if there’s a way to pay less tax, we’re all ears. But what happens when tax savings become the main driver behind an investment decision? As I’ve seen time and time again, people are sold on property investment strategies that prioritise negative gearing and tax outcomes over the quality of the investment itself. While these strategies may sound appealing on paper, they often result in financial stress, high debt levels, and poor long-term outcomes. When Tax Savings Become the Selling Point Many Australians are encouraged to invest in residential property purely because it can be negatively geared. The promise? You’ll reduce your taxable income by offsetting property losses against your earnings. But here’s the catch: negative gearing means you’re losing money every year. You’re essentially spending a dollar to save 30 cents. That’s not a winning formula—it’s a financial drain disguised as a tax-saving opportunity. I’ve seen clients earning well over $200,000 annually still struggle with cash flow because they’ve overcommitted to negatively geared properties. Why? Because they were sold on the idea of tax savings without fully considering the broader impact on their financial health. Conflicted Advice: Know Who’s Selling to You The property market is filled with salespeople whose advice is driven by commission. They’re not concerned with your long-term goals or financial well-being—they’re focused on closing the deal. Here’s the truth: These are not unbiased sources of advice. If the recommendation is coming from someone with something to sell, it’s worth asking: Whose best interest is this advice really serving? The Debt Dilemma: Stress and Strain Another troubling trend is the normalisation of taking on large amounts of debt to fund tax-driven property investments. When property prices rise rapidly—as they have for decades in Australia—buyers feel pressured to stretch their budgets to secure a piece of the market. But debt levels have now reached a point where even high-income earners are starting to feel the pinch. High debt tied to negatively geared properties creates: Quality First, Tax Second This isn’t a new problem. Twenty years ago, Australians were lured into tax-driven investments like blue gum plantations. The promise of hefty tax deductions was enough to convince many to invest, but poor investment fundamentals ultimately led to financial losses. A good investment should stand on its own merits and fit within your overall financial strategy. Tax benefits should always be a bonus, not the driving force. The Value of Balanced Advice When you’re considering any investment, it’s essential to seek advice from someone who can provide a balanced perspective and not incentivised to sell one strategy over another. A financial adviser, for example, will consider: By working with someone who isn’t tied to a single product or strategy, you’ll gain a clearer understanding of your options and make decisions that truly align with your goals. Final Thoughts: Buyer Beware If you’re considering an investment property where the selling point is how much tax you’ll save, take a step back. Ask yourself: Tax savings are great, but they should never come at the cost of quality, sustainability, or peace of mind. Remember, a good investment is one that works for you—not just for your tax return. The information provided in this article is general in nature only and does not constitute personal financial advice. 

A Self-Employed Superannuation Guide

6 December, 20236 December, 2023 Superannuation, Tax

When you’re at the helm of your own business, it’s easy to get caught up in the whirlwind of the present – chasing sales, generating leads, and growing your business. Often, self-employed people prefer reinvesting back into their businesses, hesitant to stash money away in superannuation. Yet, there’s a compelling case for setting aside a slice of your earnings. The facts don’t lie At present, self-employed Australians are not required to contribute to superannuation. According to the Australian Tax Office’s (ATO) data, while self-employed people make up about 10% of the workforce, their super contributions account for just 5% of the retirement pie in 2014-15. Dive deeper into the numbers, and fewer than 1 in 10 self-employed Australians opted to make tax-deductible super contributions that same year. What is ‘self-employed’? The ATO has clear guidelines on what a self-employed person is: For more information see the ATO website. Why contribute to superannuation? While it’s tempting to pour every hard-earned dollar back into your business, the reality is that not all businesses come with a pot of gold at the end. Some self-employed people and businesses rely solely on their own labour, with no substantial business assets to lean on. That’s where superannuation can come in, providing a great way to plan for your retirement. A nest egg for retirement By contributing to super, you are building a nest egg that will provide you with financial security and income in retirement. Putting a small amount of money into superannuation regularly can provide financial stability over time, allowing you to focus on growing your business knowing that you have another income stream building in the background. Tax benefits Here’s a big one: self-employed people may be entitled to a full tax deduction for contributions made to super. If you’re self-employed, you can make personal contributions up to the annual cap, which is $27,500 per year for the 2023-24 financial year. These contributions are taxed concessionally at 15 per cent, rather than marginal tax rates. So not only are the contributions taxed at a lower rate, self-employed people can also claim a tax deduction on those contributions. To claim a deduction for personal contributions it’s important to note that: Compounding Superannuation remains one of the most tax-effective ways to grow wealth. Over time, your contributions can benefit from compounding growth, as your investments earn returns on both your initial contributions and any earnings generated. Starting early and contributing consistently, even with small amounts, can significantly boost your retirement savings. Diversification Many self-employed people see their business as their retirement strategy. But by putting money away into the tax-effective superannuation environment, with investment strategies that can be tweaked over time, you can diversify your investment, reduce risk, AND plan for retirement. How do I contribute to super if I’m self-employed? Just because you’re self-employed doesn’t mean super has to be complicated! With various tax benefits, flexibility of contribution size and frequency, and having another source of income for your retirement, if you’re self-employed why wouldn’t you be contributing to super?! If you’d like to get started, talk to your adviser today. The information provided in this article is general in nature only and does not constitute personal financial advice. 