The most common wealth accumulation vehicles or entities include superannuation, discretionary or family trusts and investment companies. The choice of vehicle is typically driven by taxation considerations, with each option providing a unique framework of how tax is paid.Looking at taxation across the entities, super has always been perceived to be the most tax-effective investment vehicle.
Withdrawing funds from super is currently tax-free if you’re over age 60 and retired. There’s no limit as to how much can be withdrawn under these circumstances. At that time, the taxation of income also drops to 0 per cent in the case of super. On balances over $1.
While super continues to provide an attractive tax environment, what you are giving up when compared to an investment company or trust is immediate access to your money, which can be quite valuable if you are concerned about future changes to super preservation rules. Obviously, tax is only one consideration but for some investors asset protection and flexibility are of equal importance, as evidenced above when looking at the tax treatment of family trusts. Additionally, the nature of the underlying investment may also play an important role in determining the investment entity is best held in.
Case-by-case analysis will be required to determine the best entity structure to build wealth in relation to each investor’s individual needs.