When it comes to building wealth, there are three common investment vehicles to consider: superannuation, family trusts, and investment companies. The best choice often depends on how each option handles taxes. Let’s break down these options and what they mean for you.
Tax Considerations
Superannuation (Super)
Super is generally seen as a tax-effective way to invest. However, new taxes on high-income earners and larger super balances might change that. Here’s how taxes compare:
- Super Fund: Income is taxed at 15%.
- Investment Company: Income is taxed at 30%.
- Family Trust: Income is taxed at the marginal tax rates of the beneficiaries.
For capital gains:
- Super Fund: Eligible for a one-third discount on assets held over 12 months.
- Investment Company: No discount on capital gains.
- Family Trust: Beneficiaries usually get a 50% discount on capital gains.
Funding Retirement
Each investment vehicle has different tax rules for withdrawing funds during retirement:
- Super: Withdrawals are tax-free if you’re over 60 and retired, with income from balances up to $1.9 million also tax-free. Balances over $1.9 million have a 15% tax on income, and those over $3 million may face an additional 15% tax.
- Investment Company: You can receive dividends, which can be tax-favorable if you’re retired and not earning other income.
- Family Trust: Tax treatment depends on whether funds were loaned or gifted. Generally, you won’t pay tax when withdrawing funds, but beneficiaries might pay tax if assets are sold to fund the withdrawal.
Other Considerations
Super offers tax benefits, especially if your balance is under $3 million. However, investment companies might be better for larger asset balances. Family trusts allow you to distribute income and capital gains to different beneficiaries, potentially lowering overall taxes.
One downside of super is the restricted access to your funds until retirement, unlike investment companies or trusts. It’s also important to think about asset protection and flexibility, which are crucial for some investors.
Choosing the right structure depends on your personal situation. A detailed analysis is often needed to find the best option for growing your wealth.
Please contact Cadre Capital Partners for further detail and how to invest your available funds.
