Smart Strategies For Every Income Bracket - $40k A Year

Even on a lower income, topping up super and choosing the right asset allocation can make a difference to your future lifestyle

- Catherine Sharples Rushbrooke

If you’re earning $40,000 there are a few things you could do to make the most of your money. If you are part of a couple and your partner is earning quite a bit more than you, consider in whose name the investments should be held. When they are held in the lower-earning partner’s name the income (interest, rent or dividends) could be taxed at a lower marginal rate.

For example, someone with an income (after deductions) of $40,000pa is likely to be on a marginal tax rate of up to 32.5% (not including the Medicare levy); if their partner earns $90,000pa they are likely to be on a marginal rate of up to 37%. Holding assets in the name of the partner who is paying less tax will have the effect of boosting investment returns. If you already own the asset it is very important to obtain advice before transferring assets, as there may be tax payable on the transfer.

We often hear a lot about negative gearing but positive gearing might work for certain people in this income bracket. With negative gearing, the expenses (for example, loan interest and other costs) are greater than the income earned from the investment, which means that the investor is in an income-loss position. Under current tax law, the investor is able to use that loss to off set tax on income from other sources. It’s really only worthwhile if the asset rises in value over time.