I met a lovely client about two years ago and those were the first words she uttered. “We need help. We’re paying way too much tax. Please help us.”
How much tax were they paying you ask? In the last financial year they had paid $370,000 in tax. My jaw hit the floor and my question was, “Why are you doing that?”
Mary and her husband John had paid similar amounts of tax for the past 4 years. John had a successful business in the city and in their own words they were “risk averse” and thought that purchasing an investment property to offset some of their tax liability was far too risky. They had paid the tax office almost $1.5m in the past four years and their accountant had begged them to do something about the situation. He had suggested buying a few negatively geared properties to legally offset their tax liability. They had taken a look at some investment properties but just didn’t know what was a great investment and how the process of purchasing worked. Rather than make an investment ‘mistake’, they had continued to pay incredibly high tax.
The first step in meeting this challenge was to work with the couple on their investment Strategy and that involved looking at blue chip investments that were negatively geared so that they were able to get some tax benefits as well as investing in appreciating assets for their future retirement. As they were risk averse, it was important to look carefully at their cash flow and ensure that they were completely comfortable around particular investments and their outgoing costs.
Mary and John were quite like other business owners that I have worked with, in that they were stuck in the trap of spending all their time in their business and didn’t consider that at some point in the future they will want to either step back or sell the business and will need some income streams to cash flow their retirement or the next stage of their lives. Building an investment property portfolio has a twofold effect, providing some tax relief in the first instance whilst creating income streams that are appreciating in value.
Since then, Mary and John have built a profitable, diversified property portfolio over the past 3 years which has achieved over $200,000 in capital growth. They have purchased 3 homes in Queensland and NSW. Assistance was needed at every stage in the purchase process as the couple had never purchased investment properties before and were also time poor.
They are now in a great financial position as they have leveraged their income into appreciating assets that will give them more options for the future. Getting the right property investment advice was crucial to their investment decision making and using the ‘end to end’ service meant that they were easily able to achieve their investment goals.