Don't let tax advantages influence you


As the federal government talks about changing the tax system - but shies away from comprehensive change because it fears a political backlash - it is worth reviewing your motives when investing.

Tax is a consideration but concessions are no reason to make an investment. The greater priorities are the after-tax return and the risks you take to achieve it.

But governments know they can lead the community - like a bull can be led by the nose - by simply tweaking the tax system.

tax file

Who can imagine any sane person locking their money into a 40-year investment with little control over the outcome (or the fees) and at the government's whim as to whether we can get our hands on all the money in the end?

That, of course, is our superannuation system.

Yet we've happily put almost $1.8 trillion into super because we are forced to and because of the tax deductions.

It could easily be argued that Australians' obsession with residential property is not only the desire to put a roof over our heads but because our homes have capital gains tax-free status.

We know that this can help us build our wealth. Take it one step further and people move into negatively geared property because it offers an easy way of reducing their income tax, with the expectation the investment will rise in value over time.

If you make a profit, the magnificence of CGT is that it is discounted by 50% before you pay it and you have complete control over when you pay it. It makes tax sense (market conditions notwithstanding) to sell assets when you have a year of especially low income.


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