Our third Women in Focus webinar tackled the sometimes opaque world of Tax Planning: Making Effective Financial Decisions with Principal and Chartered Accountant, Siobhan Sada.
Siobhan took us step by step through what tax planning means, and the different structures that can be used to achieve financial goals.
She gave an overview of why tax planning is important and relevant at any stage of your financial lifecycle, and how it impacts decision making around buying and selling assets and wealth accumulation.
The Women in Focus series aims to educate a new audience on the basics of managing finances through each of the life phases, or refreshing the knowledge you may already have.
Each month, CountPlus One introduces another of its leaders to unravel financial information you can use as the basis for conversations with the rest of the family, or your friends and colleagues.
Like every aspect of managing your finances, Siobhan said “It all starts with having a plan and then implementing the plan”.
Through the webinar, she wanted to plant a seed that there are various types of tax structures and various combinations of them that can be used, depending on your goals and overall life plan. The presentation covered:
What is tax planning?
What tax structures are often used?
The benefits of tax planning – cash
What to do with the residual cash.
To demonstrate, Siobhan ran through three scenarios with Homer and Marge, who we’ve met in prior Women in Focus webinars. The scenarios utilised the same assumptions such as income, but different tax structures, resulting in different tax incomes. Homer and Marge were examined under different investment structures:
Scenario 1 – Investments held in Personal Joint Names
Scenario 2 – Investments held in Trust – no company
Scenario 3 – Investments held in Trust – use of a bucket company. (A bucket companyis a company that is set up as a beneficiary to a trust. The term ‘bucket’ is used because the company sits below your trust and is used to pour money into it to reduce tax.)
What these scenarios ultimately show (with the help of some complex calculations in the background) is that the income outcomes are better when well-considered tax structures are implemented.
Among the most common vehicles used for tax planning are:
Trusts – in this instance, Siobhan focussed on discretionary trusts, which give the ability to stream various categories of income to beneficiaries;
Companies – separate legal entities that allow you to capture profits in a lower tax environment, or a tax-capped environment;
And Superannuation funds – which are concessionally taxed until retirement.
“Not only is income generated year on year better when a tax structure has been well thought through but also when managed investments or other investments are sold in the structures, there are ways that we can distribute the income to keep the group tax payable down,” said Siobhan.
When it comes to managing additional income that may be generated through the efficient use of a tax structure, the tax team at CountPlus One works closely with the Wealth Management team.
“We like to look at things hand in hand,” said Siobhan. You might be able to get a tax saving today but in two or three years it may not be getting you to where your goal is … things can change, and can change the structure of what we do from a tax perspective, so we need to work together to determine where your money will serve you best.
Some of the areas that may be considered, depending on your personal financial goals, include superannuation contributions, children and holidays. This will also depend on your life stage, which circles back to the prior two Women in Focus webinars which outlined the typical priorities for each phase of life, namely:
20s and 30s – the growth phase – ensure the surplus of funds is working for you,
30s and 40s – the establishment phase – minimise risk and protect and streamline your finances to ensure your family is provided for,
50s and 60s – the retirement prep phase – building your nest egg for life after work.
The first step, as always, is to establish a goal, then work with an advisor to assess your current situation and where you want to get. Then we would try to explore what that looks like in terms of cash flow and tax scenarios, and present options before implementing a tax structure. It’s about knowing what you want to achieve.
Of course, this is general advice only and we encourage you to speak to your advisor to discuss your personal financial situation.
For more on recent webinars, to ask questions relating to your personal situation, email [email protected].
The sixth Women in Focus webinar explored Goals-Based Investing versus traditional investing approaches, and helped you to consider how well equipped you and your family are with an investment strategy