Tax-efficient structures

Most "tax structures" are accountants' hobbies you pay for.

I've sat in three accountant meetings in my life where the structure recommended would have cost me more in compliance than it would have saved in tax. Twice I caught it. Once I didn't, and ran a trust I didn't need for two years before unwinding it.

Structure is a tool. Tools that don't fit the job are a tax on you.

So here's what genuinely moves the needle in Australia, in rough order of universal applicability.

1. Super (already covered, still the winner)

The 15% / 30% concessional bracket is the cheapest deductible dollar in the country. If you haven't filled your concessional cap, you don't need a fancier structure. You need salary sacrifice. Move on.

2. Negative gearing on investment property

Already discussed in module 4. Worth restating: it's a tax mechanism, not a wealth strategy. The strategy is capital growth. Negative gearing makes the holding cost more bearable on the way through.

The mechanics: rental losses (interest + depreciation + costs - rent) reduce your taxable income from any source, including salary. At a 37% bracket, a $10k loss saves you $3,700. The other $6,300 is real money out the door.

It works if capital growth >> cash loss + holding period. It fails if capital growth flatlines.

3. Debt recycling (the most underrated AU strategy)

This is the one I wish I'd started a decade earlier.

The mechanics: you have a non-deductible PPOR mortgage. You have offset cash, savings capacity, or available equity. Instead of paying down the PPOR loan and watching the balance fall, you:

1. Pay a chunk off the PPOR loan
2. Immediately re-borrow the same amount as a separate loan, used to buy income-producing assets (ETFs, shares)
3. The new loan's interest is now tax-deductible (because the borrowing purpose is income-producing)
4. The non-deductible PPOR debt slowly converts into deductible investment debt, while you build a portfolio alongside

Over 20 years, this can shave 5-10 years off your time-to-FI by making your existing debt work for tax instead of against you.

What it requires:

• A split or reset-able loan facility (most major lenders offer this; talk to a broker)
• Discipline to keep the loans cleanly separated (any contamination breaks the deduction trail)
• Comfort with leverage and market volatility on the new investment loan
• Patience: it works because the deductibility compounds over time, not because the first year is dramatic

What it costs:

• Loan fees (small)
• The risk that markets drop and you're holding leveraged investments
• The complexity of two (eventually three) loan splits

I run a debt-recycling structure on the PPOR. It works. It also requires that I actually buy the ETFs with the new loan and not get cute. Discipline matters more than the structure itself.

4. Trusts (discretionary / family)

Discretionary trusts (often called family trusts) are the structure that gets oversold and undersold in equal measure.

What they actually do well:

• Income splitting between adult family members in lower tax brackets (your partner if part-time, adult kids over 18, etc.)
• Asset protection from personal liability (limited but real)
• Estate planning continuity beyond the death of any single individual
• Holding investment assets that will be passed down or shared

What they don't do:

• Reduce tax automatically. Without lower-bracket beneficiaries, the income still gets distributed and taxed at marginal rates. (Default trust tax rate is 47% if undistributed.)
• Hold the family home tax-effectively (you lose the CGT main residence exemption).
• Make sense for someone with one income earner and no other adult beneficiaries.

Costs of running a trust:

• Setup: $1,500-3,000 with a corporate trustee
• Annual accounting: $1,500-3,500
• Annual ASIC fees on the corporate trustee
• Mental load: distributions resolved before 30 June each year, trust deed read carefully

Rough rule: a discretionary trust is worth it when you have $200k+ in investment income flowing through it and at least one beneficiary in a lower bracket. Below that, the admin eats the saving.

I run a trust. It earns its keep because I distribute to beneficiaries with capacity. If I were a single income earner with no spouse on a lower bracket, I wouldn't.

5. Bucket companies

Once a trust starts generating real income, the next layer is a bucket company (often a "corporate beneficiary"). The trust distributes excess income to a company (taxed at 25% or 30%), and the company holds the wealth or pays franked dividends back when convenient.

This is a wealth-management tool for people with serious investment income. If your trust isn't kicking out $100k+ annually that you don't need to spend, you don't need a bucket company. If it is, talk to a real adviser, not a forum.

6. SMSF (covered in module 2)

Same principle: it's a tool for specific use cases, not a status symbol.

A clean decision tree

Before adding any structure, ask:

1. Have I filled my concessional super cap? If no, fix that first. It's the highest-ROI dollar in the country.
2. Do I have non-deductible mortgage debt and investment capacity? If yes, debt recycling probably beats whatever structure your accountant just pitched.
3. Do I have multiple adult beneficiaries with capacity for income? If yes, a discretionary trust starts to make sense at scale.
4. Am I generating $100k+ trust income I don't need to spend? Bucket company.
5. Do I want to hold assets a retail super fund can't? SMSF.

Most blokes I know are at step 1 or 2 and being sold step 3-5 by an accountant who likes complexity. The accountant gets paid for complexity. You don't.

Things I've tried that didn't work

Worth listing, because the mistakes are more useful than the wins:

• Setting up a trust before I had income to distribute. Cost me $4k in setup + 2 years of admin for negligible benefit.
• Holding international shares in personal name during peak earning years. Should have been in a lower-bracket entity. Cost is invisible because I never see the alternative timeline.
• Mixing PPOR offset cash with investment loan deposits. Created a deductibility headache that took an accountant 4 hours to untangle.

What to do this week

• If concessional super cap isn't full: fix it.
• If you have non-deductible mortgage and savings capacity: read about debt recycling, talk to a mortgage broker about a split loan facility.
• If you're being sold a trust: ask the accountant to model the after-cost saving over 5 years. If it's under $5k/year of net benefit, walk.
• If you don't have an accountant who specialises in property/investment structures: get one. The fee pays for itself in the first year.

Simple structures, ruthlessly executed. Beats complex structures, half-implemented.

Not financial advice. Talk to an adviser before acting.

Further watching

• Debt Recycling in Australia: Genius or Gimmick?
• Negative Gearing and CGT Changes in Australia: Winners, Losers and My Predictions