What type of account should I setup

Hi Julius,

Have to say up front, this questions is going to be tough for anyone to discuss on the Pearler Exchange. It’s going to rely on your personal situation, your income and assets/liabilities, even your employment and is quite complex to discuss in a general sense. Also, the answer today may be different as your situation changes and you (hopefully) become wealthier. A quick chat with an accountant will give you probably enough direction to get going. Have tried to add some more thoughts from my personal experience below.

Here are some things that we see Pearler investors do:

• Use mix of individual, joint and/or partner accounts – people make choices based on their income and their partners, there are legal, tax and ethical implications to think through.

• Use family trusts, SMSFs or companies – typically these are for larger client accounts as the setup and ongoing costs and benefits will need a certain amount of income/assets to make it worthwhile. To give you some context, the average portfolio for one of these accounts is 30-50x the average individual account.

I asked my accountant many questions about this when I was first investing and the general answer that you get to is that, for someone on a normal income and asset base, there is limited benefit (if any) in trying to do complex tax structures. This is either because there are no benefits, because the ATO has already made sure that people can’t artificially structure to avoid tax (which is a good thing for everyday people); or, the cost of the structuring only provides benefits once you get to high incomes or large asset bases, across multiple people within a tax group.

Hope this has given you some things to think about!

Hi Julius. Well done on your saving so far, that’s a fantastic starting point!

In term of accounts and tax, there’s not a whole lot of magic tricks you can pull to get out of paying tax on share investments. But here are some thoughts…

• Say an investment generates 4% income and 4% growth. The growth is untaxed (until you sell) and the dividend may be taxed at 37% (so 1.5% out of the 4%). Franking credits could reduce this further in the case of Aussie shares, and in the case of global shares, these historic (in general) distribute lower income. In both of these hypothetical cases, a total return of 8% would only reduce to 6-7% after tax. So my point is that your savings rate probably matters much more :)
• I’ve heard some people have set up a share account in their partner’s name (with their consent). This is a common way for couples to invest, with one spouse being on a lower tax rate than the other, so the shares may be better held in the lower earning spouse’s name.
• Another option is debt recycling if you have a home loan. This is a way some people use to make their investing more tax efficient by using that money to pay down your home loan first, before pulling it back out to invest. I wrote about this in detail here if you’re interested. Link below…

Debt recycling: https://strongmoneyaustralia.com/debt-recycli...

How to deal with taxes: https://strongmoneyaustralia.com/podcast-how-...

Whichever option you choose, try not to get too worried about taxes. You’re making money and increasing your wealth, so some level of tax is inevitable :)

All the best!