Working long-term goals in with immediate needs

WITH June 30 approaching, many investors start to focus on ways of managing their looming tax bill.

This short-term imperative is often seen to be at odds with the longer-term goals of building wealth or generating higher investment income.

The reality is that investors should be able to work towards both sets of goals in an integrated manner, according to Macquarie Financial Services marketing director Andrew Murray.

“Clients have suggested to us that they worry that growing their wealth or investing for income means they will attract a big tax burden, or that investing in a tax-efficient way will slow down the rate at which their wealth will grow,” Mr Murray said.

“Neither has to be the case.

“Investing with know-how means there are several ways to speed up your wealth creation while managing tax and risk at the same time.”

Investors have an ever-expanding array of products, including protected loans, internally geared managed funds and instalment warrants, to help them achieve these goals.

These products provide innovative ways of implementing time-honoured ‘tax effective’ strategies, including the use of gearing and of superannuation.

The beauty of gearing (borrowing money to purchase income-producing investments) is that the interest expense is tax deductible. At the same time, the investor has an expanded investment portfolio.

The most common approaches to gearing are to take out a home equity loan (secured against your home) or a margin loan (secured against shares or managed funds).

An increasingly popular variant is instalment gearing, which allows investors to build up their debt over time.

Another option is protected lending, currently offered by a handful of lenders including Macquarie, ANZ and Commonwealth banks.

A protected loan is a form of margin loan, with a high interest rate. In return for the extra cost, investors are protected from the impact of falling share values.

The benefits of gearing can also be achieved by investing in instalment warrants, or internally geared managed funds.

These products are particularly suited to self-managed super funds, which are not allowed to borrow money.

Instalment warrants have been available for nearly a decade but their popularity has increased significantly during the past two years. They are often described as like buying shares on lay-by.

With internally geared funds, the fund itself (rather than the end-investor) borrows money to purchase additional assets.

As well as gearing, superannuation provides an effective way of building wealth while also managing tax.

Superannuation funds attract a range of tax concessions, including being taxed at just 15 per cent on their income.

The tax benefits can be maximised if a salary sacrifice arrangement is implemented. This involves your employer making superannuation contributions from your pre-tax salary.

The dividend imputation system provides yet another means of building wealth in a tax effective way.

It allows many companies to pay dividends that are franked, that is, they are largely or completely tax-free in the hands of the end-investor, depending on their marginal tax rate.

Investors wanting further details on these and other ‘tax effective’ investment strategies may wish to read Seven Strategies to Accelerate Your Wealth Creation, a free booklet available from Macquarie Financial Services.

It explains how the different strategies work, and indicates their suitability depending on the age, income, assets, etc of each investor.


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Total Shareholder Return as at 30/06/16

1 year TSR5 year TSR
168thNewcrest Mining76%-8%
261stRamsay Health Care38%36%
314thSonic Healthcare25%19%
544thMacquarie Group-11%24%
722 WA (and selected non WA) listed companies ranked by 1 year TSR relative to other companies with similar revenue
Source: Morningstar


17th-Macquarie Group$9,368.0m
18th↑Ramsay Health Care$8,690.5m
24th↑Sonic Healthcare$5,048.4m
25th↑Newcrest Mining$4,476.2m
77 listed non wa companies ranked by revenue.
Source: Morningstar

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