Death and taxes, or taxed to death?

Welcome to Finance and Fury

A plan for structural reforms to help increase Australians’ ability for upward mobility.

The coalition will likely have enough seats to squeeze through a lot of reforms.

Today:

Income axes going up aren’t much of a concern What about the taxes you don’t see directly? The effect of these taxes on the economy growth or decline How to reduce your taxable incomes? Taxes – Government revenue source Number of taxes – do you know how may taxes you pay each year? The average Australians pay at least 125 different taxes each year, 99 to Federal, 25 to State and 1 to Local Total tax collected is approximately $528.5 Bn Most tax comes from incomes of individuals and businesses – 59% or $312 Bn Consumption tax like GST makes up 26.8% was supposed to replace state’s stamp duty Business payroll tax makes up 4.7% or $24.7 Bn charged to companies if they have above a threshold employees/wages Excises on specific goods – normally ones on top of GST at Government discretion Sin taxes – consumption tax on goods which are harmful to society Alcohol – the social cost from loss of labour, healthcare, accidents and crime costs Tobacco – the effects of smoking are estimated to cost $320 million but the revenue raised is $12 Bn Does the additional money go back in to addiction treatment programs to help? Or the general spending budget? Consumption vs Income Taxes Both can’t be kept high If consumption tax increases the cost of living, income tax should be lower Consuming becomes more costly with consumption tax, putting a strain on upwards wealth mobility

 

Statistics on Taxpayers Individuals and income tax reduction plan for 2022 and 2024 Helping reduce the burden GST placed onto families from 2001 onwards Original plan to protect works from bracket creeps With wage growth and inflation going up, if the marginal tax brackets don’t increase too you get bracket creeps Abolishing the entire tax bracket 90k – 180k incentivises hard work Despite these changes you will still see the top 5% of workers paying a 3rd of all income tax collected Someone earning $200,000 pays 10 times more tax than someone earning $45,000 per year

 

How to reduce certain types of tax? GST? Stop spending so much. Further excises on your spending only reduce with less spending Income tax? Deductions or salary sacrifice Salary sacrifice puts money into super up to $25,000 cap taxed at 15% rather than marginal tax rate Deductions give back the costs of investments or work related expenses and donations to reduce your assessable income

Give to charity – Donate to my CEO Sleepout https://www.ceosleepout.org.au/fundraisers/louisstrange/brisbane

Negative gearing when you spend more on investments than you earn Borrow to invest – home equity Get your marginal tax rate back and for a lot of people the amount back will decline from 2024 Lower marginal tax rates for those earning between $40k-$200k

 

Franking credits – Shares Tax offsets on dividend income Buy fully franked dividend yielding shares, but gets added to gross income Own 1,000 CBA shares. They pay $4.30 per share in dividend so you get $4,300 of income. Plus the franking credit, of $1,843 so total income is $6,143 Earning a salary of 100k, assessed at 39% the tax would be $2,396 minus the franking credit of $1,843 so net tax is now $523. Therefore, the marginal tax rate is now 13% instead of 39% But, you will simply pay no tax on dividends if your assessable income is all the way up to 200k, as franking credits offset tax on franked income with a 30% tax rate

 

Family trusts – No changes to distribution rules Still allows flexibility and asset protection Own assets and distribute income to the lower marginal tax rate individual

 

Capital Gains/Losses Gains still get the discount for assets owned longer than 12 months Losses, claim against future gains

If you enjoyed this episode leave a rating, if you want to get in contact you can do so here.

 

Resources:

Individuals taxation statistics - https://data.gov.au/data/dataset/taxation-statistics-2016-17/resource/4161d1b8-f9e3-4f36-b21d-d5d06b43ed2e

 

Australian taxes - http://taxreview.treasury.gov.au/content/paper.aspx?doc=html/publications/papers/report/section_2-03.htm