Tax-Efficient Investment Options in Australia

How to Grow Your Wealth While Paying Less Tax

Introduction

Taxes can significantly impact your investment returns, but with the right strategies, you can minimise your tax liability while growing your wealth efficiently.

In Australia, several tax-efficient investment options allow you to legally reduce the amount of tax you pay while optimising your financial growth. This guide explores key investment strategies that help you keep more of your money while staying compliant with tax laws.

1. Superannuation Contributions

Why It’s Tax-Efficient:

• Super contributions are taxed at only 15%, which is much lower than the typical marginal tax rate (up to 47%).
• Investment earnings inside super are taxed at 15% (10% for long-term capital gains) instead of your personal tax rate.

Strategies:

• Salary Sacrificing: Directing pre-tax income into super reduces taxable income.
• Personal Deductible Contributions: If you’re self-employed or not using salary sacrifice, you can make contributions and claim a tax deduction.
• Catch contributions: Can be made when you have less than 500,000 in your super at July 1 that year. You can use up to 5 previous years of unused contributions.

Considerations:

• Contributions are capped at $30,000 per year for concessional contributions (except when using catch up contributions).
• Funds are locked until preservation age or another condition of release (typically 60+ years old).

2. Investment Bonds (Tax-Paid Investment Vehicles)

Why It’s Tax-Efficient:

• Investment bonds are taxed at 30% within the fund, with no additional tax if held for 10+ years.
• Unlike direct investments, there’s no personal capital gains tax when withdrawing after 10 years.

Best For:

• Income earners who want a tax-effective investment outside of superannuation.
• Investors with a long-term focus who want to avoid yearly tax reporting.
• Business owners due to bankruptcy protections

Considerations:

• Withdrawals before 10 years may trigger additional tax at your marginal rate.
• Investment options within bonds can be limited.

3. Franked Dividends from Australian Shares

Why It’s Tax-Efficient:

• Franked dividends come with franking credits (imputation credits) that offset personal tax.
• If franking credits exceed your taxable income, you may receive a refund from the ATO.

Best For:

• Investors who prefer dividend-paying Australian companies.
• Investors looking for high income.
• Those in lower tax brackets who can benefit from excess franking credit refunds.

Considerations:

• Share price volatility can impact returns.
• Requires a diversified approach to manage risks.

4. Trust Structures (Family Trusts & Investment Trusts)

Why It’s Tax-Efficient:

• Distributes income to lower-taxed beneficiaries (e.g., family members in lower tax brackets).
• Capital gains tax (CGT) discount of 50% for assets held over 12 months.

Best For:

• Business owners and investors with family members on lower incomes.
• Those looking to pass wealth tax-efficiently to the next generation.

Considerations:

• Requires setup and ongoing administrative costs.
• Must comply with strict tax rules to avoid anti-avoidance penalties.

5. Negative Gearing & Property Investments

Why It’s Tax-Efficient:

• Negative gearing allows investment property losses to offset taxable income.
• Capital growth benefits can be significant over time.
• CGT discounts of 50% apply if held for over 12 months.

Best For:

• Investors seeking long-term property appreciation and rental income.
• High-income earners who want to reduce taxable income.

Considerations:

• Interest rate rises can impact profitability.
• Dependent on property market cycles.

6. ETFs & Managed Funds with Tax Efficiency

Why It’s Tax-Efficient:

• Some ETFs and managed funds focus on tax-efficient strategies like low turnover investments (reducing CGT events).
• Distributions can include franked dividends, tax-deferred income, and capital gains concessions.

Best For:

• Passive investors looking for diversified, low-tax investment options.

Considerations:

• Not all ETFs and managed funds are tax-efficient—check fund structures before investing.

Final Thoughts: Building a Tax-Efficient Portfolio

A well-structured investment strategy helps you maximise returns while legally reducing tax liabilities.

By using a combination of superannuation, investment bonds, franked dividends, trust structures, and tax-efficient funds, you can optimise your financial future while keeping more of your hard-earned wealth.

Next Steps:

• ✅ Review your current investments and identify tax-inefficient holdings.
• ✅ Consider salary sacrificing or personal super contributions.
• ✅ Speak to a financial adviser about structuring your investments tax-efficiently.
• ✅ Stay updated with changing tax laws to optimise your strategy.

• Want a personalised tax-efficient investment strategy? Book a consultation today and take control of your financial future! Book a consultation here. 
• You can get more tax-effective tips to supercharge your investments here: Pay less tax – Wealtheon
• Check out our guide Tax Return Checklist – Wealtheon on our blog here.