{"id":3070,"date":"2016-11-28T00:53:28","date_gmt":"2016-11-28T00:53:28","guid":{"rendered":"https:\/\/raizinvest.com.au\/investors\/the-legal-australian-offshore-bank-account\/"},"modified":"2024-04-04T19:09:21","modified_gmt":"2024-04-04T19:09:21","slug":"the-legal-australian-offshore-bank-account","status":"publish","type":"post","link":"https:\/\/raizinvest.com.au\/investors\/blog\/the-legal-australian-offshore-bank-account\/","title":{"rendered":"The legal Australian Offshore bank account"},"content":{"rendered":"
\"image\"<\/figure>\n

By Clayton Daniel<\/a><\/p>\n

Creating
\nwealth is a long-term process, and in the same way that being a small degree
\noff-course can have a huge impact while navigating a long journey, small
\neffects add up to big outcomes over long-term investing.<\/p>\n

As
\nsuch, tax efficient investing creates better returns for no extra investment
\nrisk. For example if you built two identical portfolios in two separate
\nentities, with the only difference being the tax rate applied to the earnings,
\nthe result will be better returns for the entity with the lower tax
\nenvironment.<\/p>\n

With
\nthat in mind there is a tax structure in Australia you can build assets in, so
\ntax efficient it makes seeking a tax dodging strategy like an offshore bank
\naccount in the Isle of Man redundant.<\/p>\n

Why
\nrisk either being ripped off or going to jail by siphoning your money offshore
\nto avoid tax, when there is a perfectly legal way to reduce your tax right now?<\/p>\n

Very
\nfew people understand how attractive this tax vehicle is, as it has a very
\nboring and bureaucratic name. Considering the advantages of ending up with more
\nmoney in your pocket over the long term, it\u2019s strange you never see this tax
\nstructure up in lights.<\/p>\n

However,
\nfor those in the know, it has such unbelievable advantages that the government
\nbuilt restrictions on how much you can put in. They did so to stop those who
\nbother to wade through the technical data from pouring as much money in as
\npossible.<\/p>\n

Lucky
\nfor you, I\u2019m going to save you the hassle of peeling through hundreds of pages
\nof dry government fact sheets, and instead put all the tax benefits here for
\nyou in plain English.<\/p>\n

The
\ncrazy thing is, you would already have heard of this tax structure before,
\nprobably even own one, but found it to be as stimulating as a Top 40 dance
\ntrack from the 1990\u2019s (Except The Prodigy, they were awesome, and I won\u2019t hear
\nanother word about it.) It\u2019s called Superannuation.<\/p>\n

The
\nmisconception about Superannuation is that it\u2019s an investment. It isn\u2019t. It\u2019s a
\ntax structure. Think of it as a car. Just as you can put almost any kind of
\nperson in a car, you can build almost any kind of investment portfolio inside
\nof Superannuation (restrictions<\/a>\u00a0exist:\u00a0here for summary<\/a>,\u00a0here for in-depth<\/a>).<\/p>\n

It
\nwill save you money right now today, save money every year, and save money in
\nretirement. Put simply, with the choice to build an investment portfolio in
\nyour own name, compared to building an identical portfolio in Superannuation,
\nyou can ensure a better after-tax result by using a tax-efficient entity while
\nnot taking on additional investment risk.<\/p>\n

 <\/p>\n

1)
\nSAVE MONEY TODAY<\/p>\n

As
\nan ex-tax accountant, I can\u2019t tell you how many people ask this question around
\ntax time: \u2018What can I do to reduce my tax?\u2019 Most people hate paying more tax
\nthan they must, and will do anything to reduce it. Think Negative Gearing, the
\npurposeful loss in income to pay less tax.<\/p>\n

What
\nif there was a way to reduce your income, but rather than losing your money
\nthrough Negative Gearing, you kept the money instead?<\/p>\n

This
\nstrategy is called salary sacrifice. It is redirecting a portion of your salary to Superannuation and is taxed at 15% (for incomes <$300k). For example, if
\nyour salary is above $180k, you pay close to half your income in taxes and
\nlevies. By redirecting a portion of your salary to long-term investments, you
\nimmediately save over 30% in tax.<\/p>\n

 <\/p>\n

2)
\nSAVE MONEY EVERY YEAR<\/p>\n

Investments
\nshould earn the investor income every year. If you hold investments in your own
\nname, this income goes on top of your salary. For example, if you earn $80,000
\nper year from employment, and a further $20,000 per year in investment income,
\nthe investment income is taxed at almost 40%.<\/p>\n

If
\ninstead, you earned the $20,000 investment income inside of a Superannuation
\ntax structure, you would have only paid 15% tax. Saving over 20% tax on your
\ninvestment returns every year of your wealth creation is going to have a
\nsubstantial positive effect on your long-term results. Also, as franked
\ndividends are taxed at 30%, and the tax environment for Superannuation is only
\n15%, you\u2019re able to claw back the other 15% tax from the government. Imagine
\nthat! The government paying you tax instead of the other way around!<\/p>\n

 <\/p>\n

3)
\nSAVE MONEY IN THE FUTURE<\/p>\n

The
\nbenefits of the Superannuation tax structure are impossible to beat once you
\nhit the age you are finally going to start using your asset base for the
\npurpose it was designed for: to pay you an income when you no longer work. It
\nis impossible to beat because these three points have a tax rate of 0%. And you
\ncan\u2019t beat 0% tax. It\u2019s truly an offshore bank account within our own borders.<\/p>\n

 <\/p>\n

3a.
\nSELL ASSETS FOR 0% CAPITAL GAINS TAX (CGT)<\/p>\n

When
\na couple in their sixties is sitting in front of me and about to declare
\nretirement, they often tell me with pride the size of the investment portfolio
\nthey have built up over the last forty years in their own names. Properties,
\nshares, managed funds etc.<\/p>\n

The
\npain in their eyes when I tell them the size of their tax bill because of their
\nsuccess has stayed with me. It\u2019s not fun learning you have to pay the
\ngovernment hundreds of thousands of dollars just as you\u2019re about to start
\nsurviving on the spoils.<\/p>\n

If
\nthey had only known about the ability to transfer assets held inside of
\nSuperannuation into tax-free environments before selling, they could have
\navoided every cent of tax payable.<\/p>\n

As
\nsoon as you \u2018flick the switch\u2019 on the Superannuation tax structure from
\n\u2018accumulation\u2019 to \u2018pension\u2019, every asset immediately becomes tax-free (assuming
\nyour super account allows this).<\/p>\n

 <\/p>\n

3b.
\nTAX ON EARNINGS DROP TO 0%<\/p>\n

For
\nthe entire wealth creation journey inside of Superannuation, you only pay 15%
\ntax on all earnings by investments. And it gets even better from there. Once
\nyou hit pension phase, the tax then becomes 0%.<\/p>\n

From
\nthe moment you start receiving income from your assets, your investment
\nportfolio will live in an entirely tax-free environment, never to pay tax on
\ninvestment earnings again.<\/p>\n

 <\/p>\n

3c.
\nINCOME FROM SUPERANNUATION IS TAXED AT 0%<\/p>\n

And
\nfinally the last benefit of reaching pension phase and having your assets
\ninside of a Superannuation tax structure, is the income you draw down to fund
\nyour ideal lifestyle when you no longer work is taxed at 0% also (Only after
\nage 60. From age 55 \u2013 60 the income is taxed Marginal Tax Rates less 15%. This
\nage 55 access is only available to those born before 1 July 1960. Sounds
\ncomplicated but it isn\u2019t. If you are under age 50 now, you have to wait until
\nyou\u2019re 60.)<\/p>\n

 <\/p>\n

From
\nthe benefits above, you can see the Superannuation tax structure is the best
\nentity for you to build an investment portfolio in the short term as you pay
\nless tax today, the medium term as you pay less tax every year, and the long
\nterm when all assets and income become tax-free.<\/p>\n

Now
\nconsider the only \u2018downside\u2019 of using Superannuation to build an investment
\nportfolio: you can\u2019t spend the funds until you reach retirement. But investing
\nis a long term endeavor, so I have no qualms in putting forward the merits of
\nSuperannuation.<\/p>\n

So
\nhow do you get money into your superannuation? Firstly you can use Salary
\nSacrifice to get pre-tax money in there. This can be helpful to save tax today,
\nbut it has low thresholds (found here<\/a>\u00a0note this limit includes your mandatory
\nsuper contributions from your employment).<\/p>\n

You
\ncan also simply deposit money into super from your bank account as it is
\nafter-tax money and the threshold is much higher (found here<\/a>), however when was the last time you did
\nthat?<\/p>\n

Raiz
\nagain have come to the rescue by bringing this valuable tax entity to the
\nfingertips of the money-smart. All you have to do to start being proactive in
\nusing this tax effective vehicle to build your long term asset base is 1) click
\nSettings, 2) click Super Fund and follow the prompts. The simplest way I\u2019ve
\nseen to start using the benefits already afforded to you under law.<\/p>\n

Disclaimer:
\nWhile deep diving into topics and education is great, we have a responsibility
\nto ensure you don\u2019t make any mistakes so please read this statement first:<\/p>\n

Superannuation
\nis not an offshore bank account, and the term is used as an entertainment
\nanalogy only. Thresholds and super laws are notorious for changing, and the
\nrules change frequently. As such, Clayton Daniel nor Raiz cannot be held responsible
\nfor the validity of the information contained in this article, nor the outcome
\nyou achieve with this information. This article gives an overview of the tax
\nbenefits of superannuation, but it does not reference the returns of the
\ninvestments within any Superfund. It neither takes into consideration your
\npersonal situation or your needs. Therefore the information is general in
\nnature. This article – and indeed any article – is not capable of being used as
\npersonal financial advice nor is it intended to be. If this isn\u2019t clear enough,
\nbefore taking any action with superannuation, get professional advice first.
\nMore information can be found\u00a0<\/i>here.<\/i><\/a><\/p>\n

 <\/p>\n

Clayton
\nDaniel is a financial commentator best known for reducing decision fatigue
\nthrough financial automation. He is the author of upcoming book\u00a0Fund Your Ideal Lifestyle.<\/a><\/p>\n

 <\/p>\n

\n

 <\/p>\n

Don\u2019t have the Raiz App?<\/h3>\n

Download it for free in the App store or the Webapp below:<\/p>\n

\n
\"download-raiz-app\"<\/a>
Click to download the Raiz app<\/a><\/figcaption><\/figure>\n

 <\/figure>\n

Important Information<\/strong><\/span><\/em><\/p>\n

The information on this website is general advice only. This means it does not take into account any person\u2019s particular investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this article to fully understand the benefits and risk associated with the product.<\/em><\/p>\n

A Product Disclosure Statement for Raiz Invest and\/or Raiz Invest Super are available on the Raiz Invest website and App. A person must read and consider the Product Disclosure Statement in deciding whether, or not, to acquire and continue to hold interests in the product. The risks of investing in this product are fully set out in the Product Disclosure Statement and include the risks that would ordinarily apply to investing.<\/em><\/p>\n

The information may be based on assumptions or market conditions which change without notice. This could impact the accuracy of the information.<\/em><\/p>\n

Under no circumstances is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz Invest or Raiz Invest Super.<\/em><\/p>\n

Past return performance of the Raiz products should not be relied on for making a decision to invest in a Raiz product and is not a good predictor of future performance.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

By Clayton Daniel Creating wealth is a long-term process, and in the same way that being a small degree off-course can have a huge impact while navigating a long journey, small effects add up to big outcomes over long-term investing. As such, tax efficient investing creates better returns for no extra investment risk. For example […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[1],"tags":[],"yst_prominent_words":[]}