I have now completed my tax return. Looks like I need to pay $590 in extra tax. My salary is flat on last year but my taxable income is up by 5%. Gross cash income is before tax income ignoring franking and other tax credits and adding in net undiscounted capital gains (not deleting losses from previous years). Dividends, franking credits, and foreign source income are all up steeply, but so are most forms of deductions. As a result tax is only up 4%. But because tax withholding is only up 1% this year I owe tax, whereas last year I got a refund.
Previous years:
2013-14
2012-13
2011-12
2010-11
2009-10
2008-9
2007-8
2 comments:
Given your marginal tax rate I can't believe you simply take the dividend income as taxable income and don't use some additional margin loan debt to offset the income with some deductible interest expense. While the interest rate on a margin loan is higher than the average dividend rate, it is still very likely to be lower than the total return from any diversified share portfolio you buy using the margin loan, and it would mean that instead of having dividend income taxed at your current marginal tax rate, you would instead end up with a long-term capital gain when you sell the portfolio, taxed at half your marginal tax rate applicable at the time of portfolio liquidation (which could also be lower than your current marginal tax rate if you don't sell off the geared portfolio until you are in retirement and have lower taxable income -- possibly much lower if the tax-free nature of superannuation pension income still applies).
If you have substantial home equity you could also get a loan secured against your home equity (eg. a St George 'portfolio loan') and the interest would be tax deductible if you use that loan to purchase investments eg. share index funds etc. That loan would have a lower interest rate than a normal margin loan (mine is only about 0.25% above the interest rate on our home loan), and is also not subject to margin calls as it is secured against your home equity and not the market value of the investment portfolio it funded...
Australian dividend deductions and trust deductions are mostly margin interest. I've increased my borrowing level recently and the deductions will be bigger in the next tax year. The long term plan is to pay down our mortgage and then redraw the mortgage and pay off the margin loan.
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