One on One Meeting with John Mitchell 20241122

Summary

In this conversation, an individual seeks advice on managing a large payout from vested company shares following a company acquisition. The advisor discusses tax implications, suggesting the individual could reduce their tax burden by contributing to superannuation, which is taxed at a lower rate. The individual is also considering purchasing a house, with a potential strategy to buy it as an investment property and explore financial planning options. They are encouraged to consult a financial advisor for further assistance, particularly regarding super contributions and tax optimization strategies.

Takeaways

• 😀 Jacob is handling the year-end tax filings, and the individual needs to review and sign the documents sent by Jacob.
• 😀 The individual’s company has been acquired, and as a result, they are receiving a payout from vested stock options.
• 😀 The payout amount is approximately $450,000, which will be taxed at the individual's nominal tax rate (potentially 47%).
• 😀 The individual intends to use the payout to purchase a house they currently rent, valued at $425,000.
• 😀 After taxes, the individual will have a significant tax liability—estimated at $182,000—on the $450,000 payout.
• 😀 To minimize tax, the individual could consider putting some of the payout into their superannuation, which is taxed at 15%.
• 😀 The individual’s annual income, combining their job salary and the payout, would total $600,000, which places them in the highest tax bracket.
• 😀 With an income of $600,000, the estimated total tax liability for the year would be around $236,000, including the Medicare Levy.
• 😀 For tax optimization, the individual could potentially contribute to their superannuation or invest the payout in a self-managed super fund (SMSF).
• 😀 The individual has minimal superannuation savings (around $10-15K) and could benefit from making concessional contributions to reduce their taxable income.
• 😀 The individual is advised to consult a financial advisor to make the best decisions about reinvesting or structuring their payout to minimize taxes and optimize their finances.

Q & A

What is the individual receiving a payout for?

The individual is receiving a payout from shares in a company that was recently acquired. The payout is related to vested options they held in the company.

How much is the individual expecting to receive in the payout?

The individual expects to receive approximately $450,000 from the payout.

What is the individual's plan for the payout?

The individual plans to use most of the payout to buy the house they currently rent, which is valued at $425,000.

What are the tax implications of the payout?

The individual will be taxed on the payout at their nominal tax rate, which could be as high as 47%. This is due to the large sum and their high income.

How can the individual reduce the tax on the payout?

The individual can reduce their tax by contributing some of the payout into their superannuation, which is taxed at a lower rate of 15%.

What is the superannuation contribution cap for concessional contributions?

The concessional contributions cap for the financial year is $30,000, which means the individual can contribute up to this amount into their superannuation at a lower tax rate.

What other strategy is suggested to optimize tax on the payout?

Another strategy is to consider setting up a self-managed superannuation fund (SMSF) where the individual can invest the funds and still benefit from the 15% tax rate within the superannuation system.

What advice is given regarding the house purchase and mortgage?

The individual is advised to put down a significant deposit to avoid paying mortgage insurance and to cover costs like stamp duty. They are also encouraged to check if they qualify for any tax deductions related to the house purchase.

Should the individual consider buying an investment property?

The individual could consider buying an investment property instead of just a residential property. This way, they could claim tax deductions on expenses like interest, repairs, and maintenance over time.

What is the recommended next step for the individual regarding their superannuation?

The individual should contact their superannuation provider to discuss making additional contributions for the past few financial years and explore ways to reduce their taxable income by contributing to super.