Tax permeates just about all financial planning circumstances, and as a high earner in the mining and resources business sector, you’ll be all too familiar with the significant percentage of earnings paid as tax and the cashflow pain felt when it comes time to pay your tax bill.
In this article, I address tax from a financial planning perspective and why it’s important for your financial planning approach to include a proactive collaboration with your accountant (and lawyer) to plan, manage and structure your tax for achieving the best possible personal wealth outcomes.
Tax is usually complicated for high income earners.
Especially for those in the Mining and Resources business sectors who have an Executive Share Scheme (ESS) and multiple income generating assets.
The overwhelming majority of clients I work with consider addressing their high tax circumstance among the most pressing priorities.
Tax efficient financial planning includes a range of strategies from relatively straight forward to more complex.
Among those more easily achieved is salary sacrificing and superannuation.
Superannuation rules, currently offer a 15% maximum tax rate on earnings and capital gains, providing a compelling tax saving from the usual take-home 45% marginal tax rate (plus the Medicare levy) high earners otherwise endure.
Further, the Bring Forward and Downsizer rule (which recently reduced its age eligibility from 60 to 55 years) also provide valuable opportunities for tax effectively moving money into super where it can also enjoy capital growth.
While contributing to superannuation represents a tax-effective retirement saving strategy, for those who require ready access to their surplus cash rather than locking it up in super until retirement age, it will be just one aspect of a broader financial plan.
For example, a well-considered tax-effective financial plan may suggest surplus cash is better used for private debt reduction or perhaps committing to extra debt in the form of a tax-deductible loan for accumulating income producing assets such as shares or property.
Many mining and resources executives have an ESS, and by nature of their role, they are often too busy to properly manage the strict tax obligations that accompany it. This can result in paying more tax than necessary and therefore not fully benefiting from the wealth ESS can bring.
Further, it’s important to be informed of, and prepared for, your company’s ESS vesting timetable.
ESS preparedness includes meeting the ATOs requirements and planning a cashflow strategy for paying tax when it’s due to avoid penalties.
For example, if you retained your shares on vesting, and the share price falls significantly, you may be placed in a situation where the share value is insufficient, leaving you unable to meet your tax obligation.
You can read more about what to do at vesting time in this article by my colleague, James Marshall.
Next steps
As discussed here, tax effective financial planning for mining and resources high earners considers the relationships between your income, superannuation, ESS management, debt and other assets in context of managing the impacts of tax on your overall wealth position.
Our financial planning advice model takes an advice team approach that aligns financial planning, tax and legal advice (for legal structures, asset protection and estate planning), to create a properly integrated financial plan that focuses on and achieves the best possible overall personal wealth outcomes for individual circumstances.
In addition to being a qualified financial planner with more than 20 years experience, I’m a former mining engineer, and that affords me specialised hands-on knowledge for managing ESS requirements.
To learn more about tax-efficient financial planning, please contact Brett Cribb on +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au
To learn more about Brett, visit this link.
Resources Unearthed is a solutions hub that provides integrated financial, legal, property, accounting, tax and business advisory services for executives, professionals and business owners in the mining and resources sectors.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.
*Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.
