Reduce Tax and Increase Wealth
Death and taxes - life's only certainties, so the old saying goes. However, since the introduction of The New Tax System in July 2000 there has even been uncertainty about tax. Well, while it's still certain we will have to pay it, for many people a great deal of confusion surrounds the new reporting obligations to the Tax Office and how much tax they will have to pay, and when.
The most significant feature of The New Tax System has been the introduction of a 10& goods and services tax (GST). GST is an indirect tax, meaning it is applied to goods and services rather than being directly levied on income. We have always had indirect taxes, most notably the now abolished wholesale sales tax, and a number of indirect taxes still remain, including stamp duty.
What is different about GST is that it is what the experts call a "board-based consumption tax", which in English means it's paid on the consumption or purchase of goods, that it's ultimately paid by consumers, and with few exceptions it applies to all taxpayers. This is no coincidence, since the GST is an attempt by Government to take some of the tax burden away from wage and salary earners, and to collect at least some tax from those involved in the so-called 'black' (cash) economy, who previously managed to pay little or no tax at all.
Now, I am strongly in favour of the principles behind a goods and services tax, and given the income tax cuts, most consumers have in reality felt little pain from the GST. Its implementations, however, has been a disaster at a business level, but the concept of reducing income taxes when we make money and taxing us when we buy things makes absolute sense to me. People should be given encouragement to work and do well, and high taxes on income don't provide it. The other benefit of a GST is that, because you pay tax as you spend, it makes those in the cash economy contribute at least something through the tax system to our schools, hospitals and infrastructure.
Now, whilst the GST, the BAS, PAYG and all the rest of it are very much with us, many of fundamentals of the tax system remain unchanged. We still have normal income tax to pay, and there's not much likelihood of that being ditched in a hurry.
Of course, you don't have any reason to worry about income tax if you don't have any income. I am always quite amused when people complain to me about how much tax they're paying. No one enjoys paying tax but, then they're also making at least twice as much.
Having said this, there's no sense in paying more tax than you have to. And there are a number of perfectly sound and legal ways of reducing your tax bill which you should take advantage of if you can. In other words, you should try to avoid tax where possible as distinct from evading tax, which is illegal as well as quite unproductive.
So, this means that you shouldn't participate in an investment simply because it will reduce your tax bill. You should only ever invest in something if you are well satisfied it will increase you wealth, treating any tax reductions that the investment receives or generates along the way as a bonus. Think about it - no one has ever become rich by taking losses and building up consequent tax write-offs.