What is a suggested strategy for tax effectiveness on personal income tax if your annual income is greater than $180K? If you are in the market as a first home buyer, it is a good idea to look at an investment property instead for tax breaks?
Ru, as your question is primarily a taxation matter, it is important that you are aware that, although I am a registered tax (financial) adviser, I am not a qualified accountant.
With that caveat in mind, your question allows us to make two very important points.
The first is that it is generally considered unwise to make ANY financial decision primarily from the perspective of taxation, particularly attempts to reduce the amount of tax paid.
The second is that, as with most other decisions, the appropriate course of action is dependent on your personal circumstances and a number of factors not in evidence from your question.
You asked whether, if the person is a first home buyer, they should consider an investment property. I presume you mentioned “first home buyer” based on the potential to receive some of the grants and stamp duty concessions that may apply to such buyers.
If this is the case, there are two flaws with this idea. Although they vary from State to State, these benefits are generally only available for owner-occupier purchasers. This means that, not only would an investment buyer most likely not be eligible for these concessions, buying an investment property first may possibly preclude the possibility of obtaining these benefits for a subsequent owner-occupier purchase.
As a general premise, there are only two ways in which you can, legitimately, reduce your tax liability; (i) earn less or (ii) spend more (on tax deductible expenditure).
Assuming the first option is “off the table”, let’s concentrate on the second.
Spending money tax effectively means paying for tax deductible expenses; typically investment costs, business expenses or depreciable items. Contributions to superannuation are usually also tax deductible if structured correctly.
The reason tax-driven strategies are complex is that realising the potential gains from such strategies usually requires a long time-frame, typically 5-7 years, and even longer in the case of superannuation.
While nobody enjoys effectively giving every second dollar they earn in their top tax bracket to the government, and you could reasonably argue that they shouldn’t, any attempts to reduce this impost without due consideration of your entire financial situation is flirting with the prospect of extreme disappointment.