By Tatum West

All of us we have tax obligations from the moment we earn an income until after we pass away. Tax planning is about staying ahead of the tax obligation game. That means knowing the rules (and watching out for changes), structuring ahead to optimise your tax outcomes, and good record keeping so when it comes to lodging your tax return you get the best outcome. You’ll also be in good shape if you ever have a tax audit.

Your tax obligation issues will vary depending on your stage in life. Here I break tax planning down into the main stages of life, from graduates all the way through to retirees. So, this article is a relevant guide for anyone who has earned an income.

Graduates & Young Employees

Yes, even for recent graduates or workers in their early twenties (or even late teens), tax planning is something to think about. At this stage, it’s mostly about laying down good habits and improving your financial literacy. Develop a basic understanding of the tax system and discover what you were never taught at school about personal financial management.

For instance, what does a tax deduction mean? If an education course costs $500 and its tax deductible, many people think that means they’ll receive $500 back from the government. But that isn’t right. It means that the cost of the course – in this case, $500 – is subtracted from your income before you pay tax, effectively reducing your tax payable by the amount of the tax on the $500..

For tradies and people who travel a lot for work, you should also be aware of tax deductions surrounding work-related expenses, such as fuel, and travel fees. While we’re on work-related expenses, make sure you know about the rules around tools of trade and uniforms before your start buying them, rather than wait for tax return time. Why? Because you’ll need to know which invoices and receipts to keep to prove the purchase.

Consider also extra super contributions, which can be very tax effective. Don’t ignore it just because retirement feels so far away. Compound interest is a most marvellous thing regarding your money and savings, which you can read about in another article on this site [add blog reference].

The HELP debt repayment threshold is $54,435 for the 2024-2025 income year. Be aware that you can’t escape your repayment obligations by working overseas. You need to report your worldwide income to the government and pay your HELP debt accordingly.

People in this age group might also be in the share market or trading cryptocurrency, so you’ll need to be aware of Capital Gains Tax. CGT is the tax you pay on the profits you make from the sale of an asset – shares, crypto trading, a house, etc. It’s tied to your income tax and it’s paid in the year that you make the profit.

Young Families

Perhaps the most important consideration for young families is to be aware that many tax implications are dependent on the combined incomes of both partners. For instance, how much of a private health insurance rebate you get is based on your combined incomes, and it also determines whether you’re over Medicare thresholds. This also affects Family Tax Benefits and child care subsidies. How many dependent children you have is another factor.

Buying that first home is often a goal of young families, so make sure you’re aware of the First Home Super Saver Scheme. Basically, this scheme allows people who have never owned property before to save money for their first home within their super fund. The benefits are that the contributions and earnings are taxed at the rate of superannuation, typically 15%, and, when the savings are withdrawn, they are taxed at your marginal tax rate, minus a 30% offset. This can result in a significant tax saving.

Mid Life

As income increases, professionals may move into higher tax brackets. Salary sacrificing into superannuation is a tax-effective way to save for retirement while reducing taxable income. The ATO and superannuation funds often provide tools to calculate the benefits of salary sacrificing.

Those considering further education or a career change can claim self-education expenses related to their current job. It’s crucial to understand which expenses are deductible and how to claim them correctly.

Investment properties can become a factor for people around this time, and negative gearing is always something that comes up, and which confuses many people. But it’s really quite simple.

Basically, negative gearing comes into effect when your costs from an investment property (maintenance, interest on loans, depreciation) outweigh your income from that investment, and you can then offset that loss by having it deducted from your taxable income.

Capital gains tax becomes more pertinent now than it did when we talked about it previously. People at this stage of life generally have greater investments and the strategies around CGT planning have greater implications financially. Always speak with your tax planner before selling an asset to determine when it would work best for you.

Estate planning becomes relevant as you start accumulating assets or have dependents they you need to look after. Here are some questions to consider:

• Do you have a will set up?
• Are you adequately insured?
• What kind of tax will your beneficiaries have to pay?
• Do you have testamentary trusts set up?
• Is relevant information easy to find for your beneficiaries? Do they know where to find it?
• Do your beneficiaries have the financial acumen to look after trusts, etc?

Pre-retirement

As retirement comes over the horizon now is the time to consider “are you going to have enough for your retirement?” and what your retirement lifestyle do you want and can afford. The soon you address this the more opportunities you will have.

As we approach retirement age, the likelihood increases of being offered a redundancy package. Before making a decision, it’s crucial you speak with a tax planner. For instance, you may consider taking the redundancy and your leave balance up front, though this means you aren’t earning any super.

Other options include taking six months’ worth of long service leave in the lead up to retirement, or taking long service leave at half pay and extending it over a year while still receiving super on it. All of these pathways have tax implications, so get advice before making a decision.

Many people at this stage are also thinking about helping out their kids with buying a house. Once again, there’s more than one to do this, and each has implications. If you give money as a gift, and the adult child is in a relationship that breaks down, you could potentially lose a part of that gift to the former partner. You might consider protecting that money by making it a loan, for which there are tax implications if you’re charging interest.

Again, there’s more than one way to skin a cat when it comes to helping out the next generation, so seek advice first.

Retirees

Accessing super is obviously a big component of tax planning at this stage. Lump sum vs income streams is generally the question, and it’s quite a complex area so talk to your tax planner about this. For those over 60, superannuation income is generally tax-free, but understanding the rules and limits is crucial for financial planning.

Downsizers should be aware that selling your primary residence won’t incur any capital gains tax if they’ve rented out their primary residence for fewer than six years, although there can be exceptions to this rule, so seek advice regarding your situation. The downsizer contribution allows individuals to contribute proceeds from selling their home into superannuation, offering a tax-efficient way to boost retirement savings.

A big factor for many retirees is how to pass funds on to children and grandchildren to help out with education or medical expenses. There are different ways to do this and varying tax implications.

There are also things you can do around asset protection, so you don’t lose money to former partners if the recipient’s relationships breakdown.

Develop the best tax planning strategy for you – at every stage of life

As you can see, each stage of life presents new priorities and new scenarios regarding tax planning. The most important thing is that you are aware of your tax obligations, you know the opportunities to take advantage of and you address any known unknowns.

The best way to do this is by seeking advice from a professional tax advisor. We’ve helped many clients develop tailored tax plans that set them up for financial wellbeing at every stage of life. Get in touch with us today for personalised advice and tax planning services.

Disclaimer

This article has been prepared by a division of People + Partners and is not financial advice and is not provided under the AFSL of Fortnum Private Wealth.