Thursday, August 15, 2013

Ten Years of Tax Credits

The chart shows our annual total of investment tax credits over the last ten years. These consist of credits attached to dividends for corporation tax paid by Australian companies known as "franking credits" and tax withheld on dividends in some countries. The US withholds tax on foreign investors, the UK does not. This doesn't include the atx credits in our superannuation (retirement) funds.

Because of investment expenses we end up with excess credits beyond the tax due on the dividends. We can use these to reduce our tax bill on a one to one basis. But with a $A60k joint annual tax bill we would need 20 times our current liquid assets to wipe out our tax bill. That's something like 10 million dollars. So this strategy is only making a somewhat marginal impact at the moment. Tax credits have not yet exceeded the pre-GFC high, despite liquid assets being 45% higher now. Liquid assets are all non-retirement investments before deducting debt.

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