Case Examples of Strategies for Reducing Taxation in Australia When Retiring Prior to Age 60
Everyone wants to reduce their tax liability: why would you want to give away money to the government, if you didn't have to! In Australia, tax considerations are even more important once you are close to or have reached a point where you retire from the workforce, where there are tax disadvantages when accessing superannuation before age 60.
However, there are a number of strategies that can be used to reduce the amount of tax you have to pay.
Outlined below are just a couple of examples of where tax liability can be reduced, if you have the right advice.
Example One: Mr B lives in Australia, is 57, retired, and is divorced.
He has approximately $1 million in superannuation and $1 million in shares outside of superannuation.
He draws a pension from his superannuation of $130,000 p.
a.
and does not sell the shares due to their large capital gain.
Mr B pays tax on the $130,000 pension he receives as he is under 60, but on the taxable portion he receives a 15% rebate.
Holden & Bolster Financial Solutions advised him to retain his pension, but instead of taking such a large amount he should drop back to the minimum pension and utilise the tax free lump sum withdrawal he can make, which in his case is $250,000.
He will get to utilise this over 3 years and in year one, it is estimated he will save approximately $8,000 in tax! Another strategy is to utilise the concessional contributions cap and transfer his shares into superannuation each year until age 65 when he can no longer contribute.
It is estimated that he should get enough in to superannuation by this time to have him paying very little, if any, tax outside of superannuation due to thresholds and offsets that he will receive and the ones that now sit in his Self Managed Superannuation fund will be forever income and capital gains tax free for him.
Example Two: Mr A is still working for another 2 years and is aged 69.
He has a new partner he lives with who is over 65 and retired.
Mr A has nearly $500,000 in superannuation and would like to leave it to his 4 adult children and his partner in equal proportions.
The main issue is that if Mr A passed away, his children would end up paying $66,000 in tax.
Given his needs, Holden & Bolster Financial Solutions have put a strategy in place that will reduce this tax payable over time.
So far, by restructuring his superannuation, Mr A has saved $49,500 and by next July his estate will have no tax payable.
However, there are a number of strategies that can be used to reduce the amount of tax you have to pay.
Outlined below are just a couple of examples of where tax liability can be reduced, if you have the right advice.
Example One: Mr B lives in Australia, is 57, retired, and is divorced.
He has approximately $1 million in superannuation and $1 million in shares outside of superannuation.
He draws a pension from his superannuation of $130,000 p.
a.
and does not sell the shares due to their large capital gain.
Mr B pays tax on the $130,000 pension he receives as he is under 60, but on the taxable portion he receives a 15% rebate.
Holden & Bolster Financial Solutions advised him to retain his pension, but instead of taking such a large amount he should drop back to the minimum pension and utilise the tax free lump sum withdrawal he can make, which in his case is $250,000.
He will get to utilise this over 3 years and in year one, it is estimated he will save approximately $8,000 in tax! Another strategy is to utilise the concessional contributions cap and transfer his shares into superannuation each year until age 65 when he can no longer contribute.
It is estimated that he should get enough in to superannuation by this time to have him paying very little, if any, tax outside of superannuation due to thresholds and offsets that he will receive and the ones that now sit in his Self Managed Superannuation fund will be forever income and capital gains tax free for him.
Example Two: Mr A is still working for another 2 years and is aged 69.
He has a new partner he lives with who is over 65 and retired.
Mr A has nearly $500,000 in superannuation and would like to leave it to his 4 adult children and his partner in equal proportions.
The main issue is that if Mr A passed away, his children would end up paying $66,000 in tax.
Given his needs, Holden & Bolster Financial Solutions have put a strategy in place that will reduce this tax payable over time.
So far, by restructuring his superannuation, Mr A has saved $49,500 and by next July his estate will have no tax payable.
