What To Look For In A Tax Effective Investment

No one wants to pay more tax than they need to legally, so if you have funds to invest, then using the most tax effective investment makes sense. If you are not knowledgeable about such things it will pay to get professional financial advice. Tax rules change all the time and so do investment strategies. Those who make a living from advising others on their finances have the time and ability to keep abreast of these changes, where the man in the street has other things to take up his time.

Tax effective investments include superannuation, equity investments and borrowing to invest. Superannuation by itself is wonderful to reduce the tax you pay on your income, as everything you put in is taxed at a much lower rate of 15%. The only trouble is that you cannot access it until you turn 65.


You can also add equity investments and bonds to your tax effective investment plan. Investing in shares in some cases allows you to receive a dividend imputation. In other words you get franking credits to use because the Australian company you invested in has already paid the tax on your dividend. It doesnt apply to overseas investments, of course. In other cases you may not have to pay tax until you withdraw the money.

Borrowing funds to invest is another tax effective investment because your income from it is tax deductible, as is the interest paid on the loan.

Tax effective investments may vary depending on your age. For the person who is near to retirement, topping up the super can be the best strategy for saving tax. Combining salary sacrifice and undeducted contributions can do this and can save you thousands of dollars in tax. But for those who are just starting out and who have a home loan, paying off that mortgage may be the best tax effective investment.

The most important thing to do before signing up for any tax effective investment is to check it out. If it sounds the least big dodgy, then keep well away from it, otherwise you could be left with a big bill and no money to pay it with. Two things to expect with any investment are: -

- A prospectus or product disclosure statement detailing all you need to know. This is a legal requirement, so if there isnt one have nothing to do with the scheme.

- A product ruling from the Australian Tax Office (ATO). This is a legally binding assurance that you will get what is claimed if the outlined procedure is correctly carried out.

Always get a second opinion on any tax effective investment - and make sure it is from someone who has no vested interest in the product. In this way you will be protecting yourself as much as possible from fraud and financial loss.

By: Melanie

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