The economic costs of the pandemic have fallen most heavily on those least able to bear them.
Governments have taken steps to support people and firms through wage subsidies, unemployment benefits, and other fiscal measures. But more investment in health care, education, and other basic public services will still be needed, and this will come at a cost.
With mounting public debt, countries will have to find innovative approaches to raise the money to pay for it all.
To this end, one revenue-raising option that will always ignite public debate and attract political support is progressive taxation.
(A tax is progressive if the tax liability, as a share of a person’s income, rises with income.)
My question to you as a property investor is, how do you feel about – tax?
Unfortunately in Australia, one big reason an overwhelming majority of property investors aren’t financial independent is because of their attitude to tax.
A saying used by mentor is “never allow the tax tail to wag the investing dog” – a great quote indeed.
As a culture, and we are not alone in this, it is the norm to be wary of paying tax and thus always looking for ways to “put on over” the ATO. Trust me when I tell you, there is no putting one over the ATO.
Enter the accountants, some of whom provide well-meaning but terrible tax advice and thus resulting in a lot of speculative investing, from which the negative gearing phenomena was born. But this conversation is for another day.
My approach to tax is a little different.
You see I was taught, and has since been proven in its practical utility, that if you are not paying tax, you are not making money. I never worry about paying tax, in fact I now understand that paying more tax as I earn more is a result of me achieving my financial goals.
What I worry about is how effectively are my investing vehicles or structures set up so that I am paying my fair share of tax. Not a penny more, not a penny less. This is a far more effective approach with better long term outcomes for you and your wealth compared to short-sighted popular “tax-saving” activities.
Every successful property investor I know never look for “loop-holes” or tax avoidance strategies.
This thinking is yet another example of being pennywise and pound-foolish, not to mention illegal.
As you acquire more wealth, it is inevitable that you will pay more tax. However do your best to avoid the common trap that many seem to fall into and then find hard to get out of, which is making “tax” a primary consideration, over what is best for business.
If you start focusing on saving tax from the get-go, then you cap your money making potential through real estate investing.
The question shouldn’t be “how can I pay less tax?” Instead, I put you the smart question for your accountant is “what is the best structure/investing vehicle for me, based on my personal circumstance, plans and goals so that I pay my fair share of tax?” – add “not a penny more, not a penny less” for good measure!
After all, you have to ask yourself, are you in property investing to save tax, or to make money?
You can’t do both. If you tried, you would always save tax, and never the make the most money possible.
Disclaimer, this post is not intended to constitute advice of any nature, professional, general or otherwise. This post and all its inclusions is for illustration and educational purposes only.
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