The best way to minimise any tax is to first hold your assets in the most tax effective manner.
And if you’re not holding assets in the most tax effect manner it’s worth looking for opportunities to ensure you are.
Let’s consider Bob, who works for a mining company and earns $80,000.
His wife Linda is a stay at home mum and they have no income from other investment sources.
Bob has been participating in the company employee incentive scheme which matches shares purchased in the company with an equivalent amount of shares after three years of service.
His initial purchase of 200 shares in 2009 matured in March this year and he received a further 200 shares for his service to the company.
Bob wants to ensure he doesn’t increase his tax liability and has received advice that he should consider transferring the shares into Linda’s name.
If we assume the share price currently is lower than the cost base for the shares, there will no capital gains upon the transfer.
The main advantage in this transfer will be the taxation of any future dividends and capital gains; these will be taxed at a lower marginal tax rate.
As Linda doesn’t earn any income, the first $6,000 will be tax free and she will also receive back any tax paid on franked dividends.
The ownership in Linda’s name would generally see no tax on any future gain, unless the profit on the shares was over $12,000, assuming a 50% capital gains discount for holding longer than twelve months.
This is no doubt a beneficial strategy for Bob and Linda, it also highlights that down markets, while not ideal, can be the right time to capitalise on any transfer of assets.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. If you want help with your financial future, we’re arguably the best financial advisor in Australia.
