What results did we help Victoria and Alistair achieve?
We created a customised strategy that helped Victoria and Alistair achieve the following:
- A share portfolio worth $8.5 million
- A personal property portfolio worth $5.4 million dollars
- An SMSF portfolio worth $3.5+ million dollars and paying only 2% tax
- A family trust worth $3.2+ million dollars and paying only 4% tax
- Reduced their combined annual income tax by $95,201 per annum on average
- Accumulated $12.1 million dollars in self-funding investment portfolios that will continue to achieve compound growth in low tax environments
- Built a well-balanced, tax effective and diversified investment portfolio
Does it sound like someone could only achieve such great results if they’re already wealthy?
The fact of the matter is, that’s not the case.
It’s true that Victoria and Alistair started in a great position. But here’s the most important thing to understand.
The traditional strategies are ineffective. They don’t achieve the best possible results and you often end up with less than you expect.
To achieve extraordinary results, you have to think and act as wealthy people do. And that applies to your tax and investment strategies more than anywhere else.
The good news is that these strategies aren’t the sole domain of the wealthy. Anyone can use them as long as you have the right accountants by your side.
You can contact one of our team to get started today.
But maybe you need a little more information. Here’s how we helped Victoria and Alistair achieve their results.
Victoria and Alistair’s Situation
In 2009, Victoria earned about $642,000 per year in dividends and interest income.
However, she had no tax planning in place, and despite making appointments with several accountants, she seemed to be getting nowhere.
They just gave her the same old answers:
- There’s not much you can do to reduce your taxes.
- Sell your shares to avoid the issue (however this would incur a massive capital gains tax liability)
- Make more tax-deductible donations.
This is the sort of advice that most accountants provide. Whether you’re already wealthy or you’re looking to build wealth, you’ve probably heard this advice before.
This wasn’t good enough for Victoria. Frustrated, she asked a friend for a referral to a good tax planning accountant. That’s when she paid a visit to Tax Effective Accountants.
During her discovery session, she told us the following:
With this information at hand, we outlined Victoria and Alistair's main challenges:
1. Every asset they owned was in Victoria’s name. This meant they paid the highest marginal tax rate of 47% (including Medicare Levy)
2. Victoria’s portfolio lacked diversification, which put her at risk.
3. Selling the portfolio would lead to hundreds of thousands of dollars in capital gains tax.
4. Like so many Australians, they weren’t using the low taxed superannuation environment to their advantage.
5. They had no tax structures in place that could significantly minimise taxes.
Many of these are challenges that non-wealthy Australians face too. Most people don’t have tax plans in place and they don’t recognise their own financial potential.
You need to invest well and tax effectively, and diversify your portfolio.
We needed to help Victoria and Alistair change their situation.
And to do that, we used a range of tax-effective strategies.
Strategy #1 - Use Residential Property to Diversify Their Portfolio
Having all of Victoria’s wealth tied up in the share market led to a ton of risk. If the market saw a downturn, her portfolio could lose a lot of its value.
Couple that with being in the midst of the Global Financial Crisis (GFC) and it was clear that the portfolio needed diversifying.
We advised Victoria and Alistair to consider diversifying into residential property.
They initially expressed some concerns. The GFC had led to a downturn in the property market too.
But here’s the secret:
The best time to buy investment property is during a downturn. It provides the opportunity to snap up some bargains that will climb in value later on.
Again, this is an example of going against the grain to achieve more.
We showed them how they could borrow money to buy properties with no money down. Not only that, they could also claim significant tax deductions which would provide them with tens of thousands in tax refunds each year to reduce the ongoing cost of holding each investment property.
We worked with them to purchase properties in blue-chip areas with high yields and low vacancy rates. These properties offered substantial tax benefits. Plus, they’d achieve capital growth over time.
Victoria and Alistair put their new investment strategy into action. Over the next three years they:
- Bought four properties in Sydney’s inner west, eastern suburbs, and CBD.
- Used their existing property as security so they never had to pay a deposit.
- That meant they bought $2.7 million of blue-chip real estate without any down payments.
We helped structure their portfolio to ensure that at no point did the ongoing cost of maintaining all the properties in the portfolio exceed $7,000 per year.
As a matter of fact, the portfolio provided the clients with over $241,180 in tax refunds, which together with the rental income resulted in each property maintaining its tax effective negative gearing status whilst being cash flow positive.
13 years later, their portfolio has grown in value to almost $5.4 million. And every property they own now pays for itself.
This shows the benefit of diversifying through property investment. And with the right advisers, you don’t need a multimillion dollar portfolio to get started.
You just need is some equity in a property or sufficient savings and good advice. Talk to our team today to get started.
Strategy #2 - Advanced Investing Using Their Super
Like many Australians, Victoria and Alistair had very little money in their super. Plus, they weren’t using their super to its fullest.
We advised them to create a self-managed super fund for the following reasons:
- They’d get full control over what they invested in.
- They’d only pay a maximum tax rate of 15% on earnings that the super generated.
- The money they’d save on tax, which amounted to 68% of their investment earnings, could go back into the super.
- Self-managed funds can borrow money for buying shares and property.
- Negative gearing in a self-managed super fund allows them to eliminate income taxes and contribution on their investments.
- They pay no income or capital gains tax when they convert the super into a pension. That means they save hundreds of thousands of dollars on future tax liabilities.
We put a few strategies in place to help them to maximise this self-managed super.
First, we examined Victoria's share portfolio and advised her to sell those that had capital losses. Selling those with a few select shares in gain positions helped her avoid any tax liabilities.
That gave her $800,000 in cash that she could add to her $400,000 in savings.
$585,000 of that went into their super, with Victoria making a further $25,000 in tax-deductible contributions per year. When Alistair started working, he’d also direct his employer’s super contributions to the self-managed fund.
Then, we got into the fun stuff.
We advised the duo to use the cash in their super to establish a couple of Limited Recourse Borrowing Arrangements. The cash covered 20% deposits plus costs (including stamp duty and legal fees) on two $600,000 investment properties. The rest of the money came through loans from the banks.
We then used the remainder of their funds to further diversify into a portfolio of exchange traded funds.
A combination of rent and super contributions funded the two investment properties. Best of all, this strategy meant they eliminated almost all the fund's contributions and income tax on investment earnings.
Just like in strategy 1, the two properties were negatively geared but cash flow positive. The strategy reduced the fund’s income tax rate from 15% on to just 2%.
That’s a lot better than the 47% that they’d previously paid on their investment earnings.
Now, their super has accumulated to approximately $3.5 million. That money will continue to achieve compound growth in the coming years; in a low tax super environment; turbo-charging their super growth rate.
Get in touch with our team today to find out how a self-managed super fund can work for you.
