Tax-Efficient Investment Strategies
Maximise your after-tax returns with comprehensive Australian tax strategies covering capital gains, franking credits, superannuation, and investment structures.
Capital Gains Tax (CGT) Optimisation
Understanding and minimising your capital gains tax liability
CGT Discount
One of the most powerful tax strategies available to Australian investors is the 50% CGT discount for assets held longer than 12 months.
How It Works:
- Hold investments for more than 12 months
- Receive 50% discount on capital gains
- Only applies to individual taxpayers and trusts
- Does not apply to companies
Example:
If you buy shares for $10,000 and sell for $15,000 after 13 months:
- Capital gain: $5,000
- With CGT discount: $2,500 taxable
- Tax saved (at 32.5% rate): $1,250
CGT Planning Strategies
Timing Strategies:
- Hold for 12+ months: Always aim for CGT discount
- Crystallise losses: Realise capital losses before year-end
- Defer gains: Delay sales to manage tax brackets
- Spread gains: Sell parcels across financial years
Advanced Strategies:
- Wash sale alternatives
- Spouse income splitting
- Trust distributions
- Small business CGT concessions
Franking Credits Strategy
Maximising tax benefits from Australian dividend payments
Understanding Franking Credits
Franking credits are a unique Australian tax benefit that prevents double taxation of company profits.
How Franking Works:
- Company pays 30% tax on profits
- Distributes after-tax profits as dividends
- Shareholders receive tax credits (franking credits)
- Credits offset personal income tax
- Excess credits become cash refunds
Franking Credit Example:
- Cash dividend: $700
- Franking credit: $300
- Grossed-up dividend: $1,000
- Tax credit: $300
Franking Credit Strategies
Who Benefits Most:
- Low-income earners: Receive cash refunds
- Retirees: Tax-free threshold utilisation
- SMSF pension phase: 0% tax rate
- Tax-loss harvesting: Offset other income
Strategies:
- Focus on fully-franked dividends
- Hold Australian shares directly
- Consider LICs and LITs
- Time dividend capture carefully
- Avoid franking credit trading rules
Superannuation Tax Strategies
Leveraging super's tax advantages for wealth building
Concessional Contributions
Reduce taxable income through tax-deductible super contributions.
2025-25 Limits:
- Annual cap: $30,000
- Taxed at 15% in super
- Can claim personal deduction
- Catch-up available if under $500k
Tax Saving Example:
$10,000 contribution at 37% tax rate saves $2,200 in tax (after super tax).
Non-Concessional Contributions
After-tax contributions that grow tax-free in super.
2025-25 Limits:
- Annual cap: $120,000
- 3-year bring-forward: $360,000
- No tax deduction
- Earnings taxed at 15%
Strategies:
- Spouse contributions for tax offsets
- Government co-contributions
- Downsizer contributions (over 55)
Pension Phase Benefits
Maximum tax efficiency in retirement through account-based pensions.
Tax Benefits:
- 0% tax on investment earnings
- Tax-free pension payments (over 60)
- Full franking credit refunds
- Capital gains tax-free
Pension Cap:
- Transfer balance cap: $1.9M (2025-25)
- Excess returns to accumulation
- Indexed with inflation
Negative Gearing and Investment Loans
Negative Gearing Basics
Negative gearing occurs when investment income is less than the costs of owning the investment, creating a tax-deductible loss.
How It Works:
- Borrow to invest in income-producing assets
- Interest costs exceed investment income
- Net loss reduces taxable income
- Rely on capital growth for total returns
Common Applications:
- Investment property
- Margin lending for shares
- Investment bonds
- Managed fund borrowing
Negative Gearing Considerations
Benefits:
- Immediate tax deductions
- Leveraged investment exposure
- Potential capital growth
- Forced savings mechanism
Risks:
- Ongoing cash flow requirements
- Leverage amplifies losses
- Interest rate risk
- No guarantee of capital growth
Requirements:
- Sufficient income to service debt
- Long-term investment horizon
- Risk tolerance for leverage
Investment Structures for Tax Efficiency
Individual Ownership
Direct investment in your personal name.
Benefits:
- CGT discount (50%)
- Franking credit benefits
- Simple structure
- No additional compliance
Drawbacks:
- No asset protection
- Limited tax planning
- Full personal liability
Family Trusts
Discretionary trusts for income and tax planning flexibility.
Benefits:
- Income distribution flexibility
- Tax minimisation through beneficiaries
- Asset protection
- Succession planning
Considerations:
- Setup and ongoing costs
- Compliance requirements
- No CGT discount for trust
- Beneficiary tax rates apply
Company Structure
Corporate investment entities for specific strategies.
Benefits:
- Flat 30% tax rate
- Franking credit generation
- Perpetual existence
- Asset protection
Drawbacks:
- No CGT discount
- Double taxation on distributions
- ASIC compliance
- Limited access to funds
Year-End Tax Planning
Before 30 June Strategies
Capital Gains Management:
- Realise capital losses to offset gains
- Consider partial profit-taking
- Review holding periods for CGT discount
- Assess wash sale implications
Superannuation Contributions:
- Maximise concessional contributions
- Consider spouse contributions
- Use carry-forward provisions
- Plan non-concessional contributions
Investment Deductions:
- Prepay investment expenses
- Consider margin lending interest
- Review investment advice fees
Record Keeping for Investments
Maintain detailed records for tax purposes:
Essential Records:
- Purchase and sale confirmations
- Dividend statements
- Annual tax statements
- Corporate action notices
- Loan documentation
- Investment advice fees
Digital Tools:
- Broker portfolio tracking
- ATO myTax prefill
- Investment tracking apps
- Cloud document storage
Important Tax Disclaimer
This information is general in nature and does not constitute personal tax advice. Tax laws are complex and change frequently. Individual circumstances vary significantly, and strategies that work for one person may not be suitable for another. The information provided is based on current tax laws and ATO interpretations, which may change. Before implementing any tax strategy, you should consult with a qualified tax advisor, accountant, or financial planner who can consider your specific circumstances. The Investment Learning Hub does not provide personal tax advice and recommends seeking professional guidance for all tax planning decisions.