Tax Tip 150: How to Pay No Income Tax

Want to Avoid Income Tax Completely?



This post was promoted by this real interesting life story (American):
4 Years of Tax-Free Living - Go Curry Cracker!


With such a provocative title this thread may get a lot of hits. People like to avoid paying taxes. Some say that paying tax is good as it means you are earning money – but it still hurts.



So how do you avoid income taxes completely??

Simply earn less than the tax free threshold. Currently an individual (who is resident) can earn about $20,000 per year and not pay tax (low income tax offset included).

If you are a couple that is $40,000 between you.


Not much to live on, but if you have paid off your home and the kids have left home it should be enough for an adequate lifestyle, even in Sydney.


Don’t forget this is taxable income. If you have an investment property with depreciation your cash flow might be higher than this because of non-cash deductions such as depreciation.

If you have some shares you could sell enough to generate $40,000 worth of income per person and then apply the 50% CGT discount to get a taxable income of $20,000 yet cash flow of $40,000 each.

If you were receiving franked dividends you could be receiving much more without having to pay additional tax see
Tax Tip 147: How to Earn $95,000 pa and pay No Tax
https://www.propertychat.com.au/community/threads/tax-tip-147-how-to-earn-95-000-pa-and-pay-no-tax.15496/


And wait till you get old, because that is when the fun starts. A person that is of pension age can earn up to $32,279 per year and not pay tax if single or $28,974 each if a couple. That would be $57,588 per year for a couple. You may even get a part aged pension depending on your circumstances.

If you still think this may not be enough to live on, you could combine it, depending on your situation, with a strategy involving borrowing to pay investment expenses while living on rents – as discussed at

5 Living Off Equity Strategies to Speed up Retirement
https://propertychat.com.au/communi...quity-strategies-to-speed-up-retirement.7409/

Setting up enough loan facilities early on, before retirement so that you could draw say $10,000 to pay for investment expenses, even interest, and thereby increase the rent left over to live on by $10k. This won’t result in increased taxes because your income won’t change. In fact your income will decrease because your interest expense go up. Hopefully your properties will increase in value more than the $10k (plus interest) you are borrowing each year. At some point your loan will run out – and it may be impossible to borrow more at this stage. But the increased rents received may be enough to cover the extra interest, if not you will have to sell. You will have to be careful as as rents increase you may end up paying tax - disaster!

It can work well with shares too because you can sell small parcels each year – perhaps sell $20k worth so that you are taxed on $10k after the 50% discount – with the tax being $0 if you plan right.

In summary – keep your living expenses low and you may never need to pay income tax again.

 

move offshore. become a non resident in a country where only citizens are taxed on worldwide income.\

then invest in shares with fully franked dividends paid. as a non resident it is a final tax. don't pay any additional tax as the companies have already paid it.

could earn $1m in franked dividends as a non resident and not pay any tax

 

I know a large number of real clients who earn $40K or more a year and pay zero tax. Husband and wife both do it !! And the Govt also gives them pension money on top of it sometimes. Very low cost pharmacy and public transport fares too. And all their investment returns are tax free too.

Its called super.

Over 60 and you have $$$ savings or investments that arent in super. Perhaps you are missing out on the deal. It can be combined with Terry ideas and even Mike's FF dividends and maybe receive refunds from the ATO on top.

 

Tax is optional!

 

If you do it right/smart, you could have $1.6M each in Super at age 60 and draw 4% tax free.

That is, $64,000 for a single or $128,000 for a couple.

And when you both turn 65, you get a mandatory 25% 'pay rise'. That is, $80,000 pa for a single or $180,000 pa for a couple, all tax free.

First time ever, I look forward to getting older .

 

Sorry what is the issue at age 65 ??

 

One of the best ones is people with former commonwealth and state govt pensions plus super. eg ex Govt workers, soldiers etc. They get two or three sources of income all either taxed at 0% or minor tax issues. And a govt seniors card on top !! The older pensions are index and based on final salary and last until death. Some then vest to their spouse (a % sometimes).

Its like lotto paying out each fortnight.

Some of these people are about to get a rude shock on 1st July 2017 when the full concession ends. The were able to double dip the old govt super scheme and the normal super concessions. Even employer contributions were not counted. (Since the employer didnt actually contribute)
Part taxation can apply after July 2017. The $1.6m super cap will also count these exempt pensions and special rules will impose tax on the ones who breach the caps.

 

No issue, just more tax free money to spend .

 

Where does more money come from at age 65 ? Super is tax free from 60. And age pension start date is rising so many need to be over 65 like 68 and rising to 70.

Age pension ? If a persons gets a number of pensions (super etc) its possible the age pension of $0 will be paid. Turning age 65 is not a automated right to pension any more. Asset and income tests are getting far tougher. However there is a generous way of being EMPLOYED BUT NOT SELF EMPLOYED casually when retired that can allow good earnings without harming pensions. In some cases up to almost $800 a fortnight can be earned...Not kidding

How to boost the age pension by $792 a fortnight

 

I expect in future years there will be a generation of haves and have nots with a huge gap in the middle. Those who made property $$$ and saved for super will get zip and moan about how they can get rid of assets and income. It will become a first world problem - Selling down assets to live off. And those who didnt will beg for more pensions and wont get a cent

 

Under 65, the mandated minimum pension payment from Super is 4%.

It goes up by 25% when one gets to 65, to a minimum of 5%.

One can always take more than the minimum but, if a couple has $3.2M in Super, would they ever need to?

 

Agree the higher balances tend to be finding ways to minimise the drain as they dont need it. Recontributions will no longer work.

Hard to do but a limited recourse borrowing facility can bypass the caps and recontributions issue for some with a smsf. A related party loan seems hard to do but can be done. If the earnings from it produce good income that growth is excluded form the cap too ...Thats my prediction for 2018....A quest to find related party loans to get around some limitations.

 

Wha

What country?

 

Or lose 10% of interest and pay no tax. eg Non-resident invests in a ETF that pays 100% interest related income. Registry will withhold 10%. Foreign resident of HK isnt required to declare foreign interest income. Hence ts full and final tax.

If I was that investor I would follow Mike's suggestion and go with FF bank shares for example. No withholding on FF divs and a HK for example national does not have to report foreign income. Or persons lives in a non-treaty country and just ignores any tax issue.

But the best is this one...Person aged 60 and retired. Has $200K invested in CBA shares since 2013. Receives a 2018 Div of $12,909. Final tax due is $0. Refund of franking credits is $5532K....They earn $18,441 pa. And their wife does the same thing....Welcome to Australia.
(May impact pensions however)

 

Paul would this be affected by Labours suggested changes for franking credits?

 

Probably, but no one knows what their proposal is exactly.

 

In its current proposed form, the franking credits wouldn't be refunded unless also in receipt of an aged pension.

However the proposed form may not eventuate as Terryw alluded to.

 

Potential loss of franking credits, negative gearing and the 50% CGT discount: what is a capitalist to do?

 

Don’t vote ALP