Tax Effective Investments – Like Shooting Fish in a Barrel

“If people spent half the time and energy they do on avoiding tax to make money, this would be the richest country in the world”
Tax effective investments such as trees, have never been high on my list of recommendations. Why not? Let's take a close look.

You go to your accountant or financial planner to have your tax done. Because you have worked hard and made money you have a tax bill. The more money you make, the larger the tax bill. Am I the only one who really loves a large tax bill? Think about that for a moment.

So because you are unhappy with your tax bill, your accountant or financial planner suggests a great idea. Trees! You invest $10,000 in a forestry investment (trees), receive a $8000 deduction and save $4000 in tax.  In 11 years time when the trees are harvested and pulped into wood chip you should receive back at least the minimum investment of $10,000, perhaps more. However, when you get your $10,000 back it is fully taxable. So now you have to pay the tax you were trying to avoid in the first place.

So, what’s the point? My guess, the big fat commission your accountant or financial planner receives. If it is because of a big fat commission, your adviser is no more than a product flogger. Ouch!

But wait there’s more!
If you were lucky enough to have an accountant who put you into Great Southern Trees between 1998 to 2003, you do not have to wait 11 years, Great Southern will buy these back off you now. So how much will you get? I have been advised by a Great Southern representative that if you owned a year 2000 lot you would receive 2,150 shares in Great Southern. These shares are issued to you at a price of $1.10, making them worth $2,365. But wait it gets better. The stock is currently trading at $0.50, so the real worth is $1,075. Best of all, you’ll be taxed on receiving the $2365.

So how did this investment work out?

Cost $10,000, less tax saving $4000, less the shares you received for the trees of  $1075 gives you a total cost of $4925. In short if you had done nothing you would be $4925 better off by paying the tax.

Moral of the story
The only way to save tax, is to structure your investments correctly from the start.

To get the right advice on structuring see us. 
Phone (07) 4771 4577 and make an appointment.

Jason Fittler