Such structures are becoming part of a “best case” scenario for those seeking to tax-effectively manage their wealth in the long term.
Investment companies pay tax at 30 per cent, whereas people earning over $135,000 will now stay in the 37 per cent marginal tax bracket for their personal taxable income between $135,000 and $190,000, creating an incentive to utilise an investment company to tax-effectively manage their family’s investment activities.There are a number of other benefits of companies such as asset protection advantages and estate planning flexibility.
A superannuation account must be wound up upon death and at that point a “death benefit” tax of 15 per cent is payable on the taxable component of a payment made to non-dependant beneficiaries.A company pays tax on its income each year but doesn’t have to distribute its income – that is, it doesn’t have to pay a dividend.
An investment company can, however, declare a dividend to a shareholder, including a family member on a relatively low marginal tax rate, with the shareholder loaning the funds back interest-free to the company. The cash need never leave the company.