tax minimisation

[Lolly]

Work has a new policy for staff to clear their leave liability pronto. I have somehow amassed nearly 6mths worth (including Long Service Leave). I'm not in a position to just take a nice long holiday (the irony ), so it may be that they will be just cashing it out.

So I have a problem. I don't want to be loosing half my leave pay to tax. All my affairs are managed on my usual income which means I don't pay much tax at all. This is really going to throw things out.

Any suggestions for legitimate tax minimisation - I'm not sure buying another property is the answer, as by the time its settles, I will have only paid 3 mths worth of interest on it, so won't get the benefit of a full years negative gearing to offset the effective increase in income.

Its likely work will cash out in Feb 2010. If cashing out is my only option, I am going to try and negotiate that they hold out until the 10-11 FinYear. This will hopefully open up more possiblities how I might be direct the money.

Suggestions for cashing out in Feb 2010, and (hopefully) July 2010?

[Arwon]

I don't believe they can force you to cash out LSL. but the usual thing i see is you can only have accrued the amount of days you would have in 12 months work. for me thats 22 days

[Deej]

Get it paid into Super?

[Lolly]

Super - absolutely no way. I balk at giving any more than the mandatory minimum to someone else to manage. If I was closer to retirement age than I would look at it differently as Id take advantage of the 15% tax rate but by the time I get to that age I'm sure they'll have changed the rules again. So I'm not risking it.

I did look at renovations but I think they are for the most part considered as capital works so can only be depreciated not deducted.

Sigh....

[jules_1972]

When time is right, will be dumping more into Super for me...

[CB Boy]

Get it paid into Super?

Best possible option in my opinion....
If you don't need the money right now, take advantage of paying only 15% tax and salary sacrifice it into super if you can.

Most worldwide markets are rebounding from the large drop we have had so now is the time that people should be putting extra salary sacrifice payments into their super and choosing an agressive option for investment.

Think long term......

[Bluebagger]

LSL cannot be cashed in. It must be taken as a minimum of one week or more. Cannot take one day off and say it is LSL.

If you want to minimise the tax on the annual leave you cash in, straddle it over two years. Take half the cash this financial year and then the other half in July next year. That way you have less chance of being pushed into a higher tax bracket.

Other than that, you can look at negative gearing a house, shares or other appreciating asset. If you are worried about not getting the full year's worth of negative gearing in this financial year because we are half way thought it already, you can prepay next year's interest in June 2010 to maximise this year's deductions. But you need to be careful that you organise it properly with the bank. This usually works best if you have an interest only loan. If it is a principle and interest loan and you make a large payment in June it can be treated by the bank as an extra repayment or a capital repayment, which is not tax deductible. Only the interest is tax deductible. If you are going to do this, speak to your tax accountant and bank manager so that it is organised properly.

Salary packaging the annual leave into super is another option. This will limit the tax on this income to 15% but you will have to wait until your preservation age before you can cash it out. If you don't need the cash now, this is a good option because it will be invested in a low tax environment. With today's super laws, you can never have too much super.

My 2 cents ...

[Lolly]

Aah thanks Bluebagger I forgot that you can pay interest in advance! I'll look into that further as that might be a good option for me and my circumstances.

[Deej]

Super - absolutely no way. I balk at giving any more than the mandatory minimum to someone else to manage. If I was closer to retirement age than I would look at it differently as Id take advantage of the 15% tax rate but by the time I get to that age I'm sure they'll have changed the rules again. So I'm not risking it.

I did look at renovations but I think they are for the most part considered as capital works so can only be depreciated not deducted.

Sigh....

u asked for tax minimization, u didn't giv emuch more info than that.

Why don't u manage your own super by the way of it shits u that much.

[Deej]

Pre pay interest...

Only worth while if you are diciplined enuf to do something wise with the interest that you were going to pay next year. If u squander it, u would be better off taking it all now, paying the tax, and doing something wise with it now.

[HughDMan]

you could also get them to pay out a couple of days a week, on top of your salary, or force yourself to take a holiday if you have to use them up, If it was I, I would do all of the suggested, cash some in, take a holiday and put some in super. Speak to a professional, as they may have other/better ideas.

[Deej]

Dude this is PSB. We iz all profesiommamals at everfing here!

[Lolly]

u asked for tax minimization, u didn't giv emuch more info than that.

Why don't u manage your own super by the way of it shits u that much.

Sorry I should have said upfront that Super is not an option of choice.

To answer your question, the super scheme I am with doesn't allow management beyond electing the percentage to which money is in cash, high risk shares, property etc. They did say that they are looking at moving to an even more self managed approach but that will be some years away yet. I will make a point of seeing if other super funds offer a more hands on approach.

Either way, its like I'm giving my money away and I can't see it for 30 years (40 if Abbott has his way). And I can only hope that it is still worth something then (think about the poor sods who had to rely on their super over the past 2 years) and that I'm still alive.

I prefer the monopoly game approach, building my own asset base (and by default super for the future) with property, shares etc that I'm in control of and can liquidate at any time. As for the compulsory super - I'll leave that to my employer to pay into until I get closer to preservation age (makes me sound like a pickle ) when I'll rethink how best to manage any surplus cash then.

I think Blugbaggers approach will work well though. It will give me time to look at buying another asset in the next financial year to use that prepaid interest to good effect.

[Lolly]

you could also get them to pay out a couple of days a week, on top of your salary, or force yourself to take a holiday if you have to use them up, If it was I, I would do all of the suggested, cash some in, take a holiday and put some in super. Speak to a professional, as they may have other/better ideas.

Thanks I'm going through my agreement with HR on Monday - as I'd definitely prefer a defer option or heck even to take some leave would be nice