Financial Structure

By Jason Fittler

There are four core variables in growing your wealth:

1. Returns

2. Savings

3. Tax

4. Fees

None are more important than the other. You need to consider all 4 if you wish to become wealthy and achieve financial freedom.

How you structure your investments will affect all these variables.

Use the wrong investment vehicle and you will pay too much in tax.

Use too many investment vehicles and you will pay too much in fees.

Some investments vehicles such a Super limit how much you can save.

The investment vehicle could also limit what you can invest in as such limit returns as well.

Structuring your investments through Trusts, Companies, Super Funds or in your individual name is a journey not a choice. The structure you use needs to change as your investments and income increase.

Starting out

When you are starting out you will most likely invest in your own name. Any income will be small and the extra tax you pay will not justify the costs of setting up an expensive structure such as a company, trust or SMSF. Keeping in mind it is not just the set up costs but also the ongoing accounting costs with these structures.

Increased Income

As your income increases either from your investment or your work you will need to start to look at reducing any passive income you earn (income from investments). To do this you can move your investments into a spouses name or start looking at a trust. As a rule of thumb you will start looking at trusts with company beneficiaries once your tax rate has increased above 30%. This structure will take the income and the capital out of your name. But, there will be capital gains taxes issues to deal with. All change requires a level of pain.

Middle Age

At some point I recommend 45 years old at the latest you will start thinking about retirement and now Super should become a focus. This structure is tax effective but has two drawbacks: 1. Your money is locked away until you retire and 2. You are limited as to how much you can save each year based on your age. This is why mid forties is a good time to start to focus on this structure. But you will keep your trust structure in place.

Retirement

Before you retire at age 55 you need to start moving money from your trust into your super for the obvious tax advantages.  Again this will depend on capital gains tax issues and limits of how much you can move each year. So give yourself at least three years advance warning to make sure the transition is as smooth as possible.

If you would like to know more please call us on (07) 4771 4577.