HOW TAX PLANNING SAVED JERRY $39,975

This is an actual situation that happened in the 2020 financial year. Names are fictional to protect the client however the numbers are accurate.

Jerry Seinfeld has been a client of Cox Sherlock Accountants (CSA) for a number of years. Jerry has a number of Canberra investment properties and, during the 2020 financial year, he sold two of these properties. Canberra locals will appreciate that most properties purchased more than 10 years ago have achieved significant capital growth. These properties were held for around 15 years and had a gross capital gain of $898,000.

This capital gain was eligible for a 50% discount and the net capital gain was $449,000.

Jerry was also running a business, Seinfeld Comedy Pty Ltd, and, in the past, had paid himself a wage of $180,000 per annum.

Through tax planning discussions with Cox Sherlock Accountants and Jerry’s financial planner, we ceased paying this wage (through the company) and Jerry lived off the proceeds from the sale of the investments.

Jerry also then contributed $23,642 to superannuation personally. In the past, all Jerry’s superannuation contributions had come from the company.

By reducing Jerry’s income from the company, and making the superannuation contributions personally, it resulted in a tax saving of:

No Action

Action

Normal income

$180,000

$0

Capital Gain

$449,000

$449,000

Superannuation contribution

$0

$25,000

Taxable Income

$629,000

$424,000

Tax Payable

$268,727

$172,377

Company tax position

($56,375)

Net tax position

$212,352

$172,377

 

Tax Savings

 

$39,975

From the proceeds of the $898,000 sale of the property, $600,000 was contributed to superannuation as non-concessional contributions for Jerry and his spouse.

Further, Jerry was getting close to the age of 65, where the ability to contribute these large amounts reduces.

The benefit of having the $600,000 in superannuation is that the earnings on this amount are taxed at 15% and then 0% when the fund moved to pension phase.

Alternatively, if the money was invested in personal names, the income is taxed at marginal rates which, while working, would be 47%.

If investment earnings were 6%, this is an annual tax saving of $11,520 which moves to $16,920 when the fund goes into pension phase.

Act Early, Act Now

While the above situations are all designed to be positive for businesses and individuals, there are longer tax implications that may need to be planned for and managed.

Tax planning can help, however, it is only effective if you act ahead of tax time. By undertaking some simple tax planning, now, we can make recommendations that will give you the opportunity to reduce the tax bill and determine your tax position. You’ll be less stressed and will have more time and energy to focus on your business.

“We had the sale of a couple of rental properties during a financial year and we knew we were going to have a large capital gain. With discussions with Cox Sherlock Accountants and our financial planner we were able to structure our affairs in a way which both saved tax and gave us peace of mind as the tax bill was in line with what had been calculated by Cox Sherlock.”

– Shelley, U

Do you want to avoid tax surprises this year?

Contact us today to have a no-obligation discussion about how tax planning can help you.

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