Episode Details

It's often said there are two things that are guaranteed in life – death and taxes.

While taking care of your physical and mental health can lead to a longer, healthier life and stave of the death part, what can you do to legally minimize your tax?

Since tax can be one of your biggest expenses as a property investor, in today's podcast I chat with independent financial advisor Stuart Wemyss about what options are available to you.

Before we get started let me give you a quick disclaimer… cheating or doing dodgy things to minimise your tax is wrong and illegal – and never worth it.

Remember, when you dodge a tax return, the taxpayer takes all the risk.

If you get audited, you will be liable for the interest and penalties, not your accountant.

And of course, after my chat with Stuart, I'll share my popular mindset message.

Building a substantial property portfolio may be simple, but it's not easy.

And that's not a play on words.

It's simple if you follow the systems and frameworks other successful investors have, but it's not easy because it requires money management skills, delayed gratification, discipline, resilience, and an understanding of finance, tax and the law.

I guess when I put it that way it's not surprising that 92% of investors never get past their first or second property.

And of course, property investment is a team sport – you need to get a good team around you including a property survey accountant, a proficient finance broker and a property strategist.

In your journey as a property has a property investor, after your interest payments to text will probably be the most expensive outgoing in your property investment business and if you get it wrong it could end up being the most expensive cost.

1. The three tax phases in a property's life
   1. Initial negative gearing phase. Income tax benefits. Land tax is often not material.
   2. Neutral phase. Property starts to produce a taxable income.
   3. Tax liability phase. After holding a property for 20 years, you should have heaps of equity in it, and it has helped you build a lot of wealth. However, a consequence of this is that (1) income tax liabilities start to become material, (2) land tax can also be quite costly
2. Some income tax considerations
   1. To maximize negative gearing often requires putting property in the highest income earner's name.
   2. Minimize income tax later – having all property in one spouse's name could increase tax consequences.
   3. You need to think about your tax position in retirement.
3. Land tax considerations
   1. Consider geographical diversification
   2. In VIC, land tax-free threshold hasn't changed since 2009 ($250k). Don't own property jointly i.e. one in each spouse's name is better. Use separate trusts.
   3. In NSW, avoid using a trust. Use personal name or company.
   4. QLD, similar to VIC. A personal name is cheaper than a trust. If you want to use a trust, use separate trusts.
4. Capital gains tax considerations
   1. Sell when your taxable income is close to nil e.g. in retirement
   2. The goal is to spread the gain across as many taxpayers as possible to take advantage of marginal rates. E.g. $1 taxable gain:
      1. In one person's name = $440k of tax
      2. Distributed to 4 adults = $352k ($88k saving i.e. 20%)
   3. SMSF will pay zero CGT when in the pension phase.
5. Finding a tax advisor
   1. We tend to think deeply about our own challenges and circumstances, so with that in mind, it's important that you use an accountant that invests in property themselves.
   2. A referral is the best way to find good advisors. Find a successful property investor and ask who they use.
   3. In business, you quickly learn that professional advice always pays for i