Ways of minimising tax in the past – Intro & Part 1 Investors

Intro – how they paid less tax in the past


One of the questions I get from people is - how can I pay less tax?

 Looking at all the taxes there are these days – it seems that whenever somebody found a loophole to pay less tax– the government introduced a new set of tax laws to make sure the loophole no longer works!

 So I thought I would look at all the ways that people might have avoided paying tax in the past – but are now caught under tax laws introduced in the last 20 years.

 Even though you may be ‘caught’ under the tax rules – you still can sometimes save some tax – but maybe not as much as before. So some ideas will still be worth doing.

 Also -after all this, I will write in a separate article some of the best ways that you can still legally reduce tax.

 We will be talking a completely different language

From now on I will be talking in a language called ‘Australian Tax’. It is a different language spoken fluently by accountants, lawyers, those in business and investors (to name a few).

 You might know some of the words of ‘Australian Tax’ (just like I know a few words of French). But of course just knowing the words does not mean you know what everything means. For example I might know a word or phrase in French – but even if translate the phrase into English the full extent of the phrase might be lost.

 I don’t speak the language yet

 If you read this article and find the information completely new– that is fine and to be expected. Australian tax is a language where you probably don’t need to know everything (particularly if you just earn a salary or wage from a job – most of this information might not apply to you).

 This information is NOT complete – see www.ato.gov.au and/or a professional

 This article is in very, very general terms. Each of the laws discussed have lots of ins and outs and this is NOT a summary of each set of laws. If you think something has relevance to you -please see a professional (or at the very least do a lot more reading from the Tax Office website www.ato.gov.au to understand better).

 Part 1 – Investors– how they paid less tax in the past

 Capital Gains

Then: Made profits from capital assets (i.e. Bought shares for $10,000, sold them for $20,000 – no tax)

 Now: Capital Gains Tax (“CGT”) (since 1985)

Summary: Capital Gains are included as income in your tax return (although individuals get a 50% discount on the capital gain if the asset is held more than 12 months).

 So there is NO SUCH THING as Captial gains tax – rather Net Capital Gains taxed as income (i.e. added to taxable income and marginal income tax rates apply).

 There are some exceptions to capital gains (see below re: principal place of residence) and concessions (see: selling a business) but in lots of cases if you receive an amount of money it will either be taxed as income or as a capital gain (which gets treated as income anyway although you might get the 50% discount).

 How it works: You buy shares for $10,000 and sell them for $20,000.

You have made a gross capital gain of $10,000.

First: Capital Losses (in this year or previous years)

 you apply any previous capital losses you have (Say you had $1,000 capital loss from 10 years ago carried forward)

Second: Concessions (like 50% discount if held more than 1 year)

You apply any concessions (for example you get a 50% discount if owned for more than 12 months)

 Example above: Gross Gain $10,000

Less Capital Losses: ($1,000)

Gain           $9,000

50% discount ($4,500)

Net capital gain $4,500 (included as income in your tax return)

 Note capital losses are applied first against gains. Obviously this will usually result in a higher capital gain than if the discount was applied first THEN losses. Capital losses can be carried forward indefinitely (or until an individual passes away or entity wound up)

Posted in Shares, Tax

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