Tax-efficient structures
Trusts, super, negative gearing, debt recycling. What genuinely moves the needle versus accountants' hobbies.
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Trusts, super, negative gearing, debt recycling. What genuinely moves the needle versus accountants' hobbies.
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.
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.
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.
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:
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:
What it costs:
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.
Discretionary trusts (often called family trusts) are the structure that gets oversold and undersold in equal measure.
What they actually do well:
What they don't do:
Costs of running a trust:
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.
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.
Same principle: it's a tool for specific use cases, not a status symbol.
Before adding any structure, ask:
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.
Worth listing, because the mistakes are more useful than the wins:
Simple structures, ruthlessly executed. Beats complex structures, half-implemented.
Not financial advice. Talk to an adviser before acting.
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