You may think that rarely does a financial advisor suggest to clients to give away some of their hard earned wealth as a donation.
The good news is there are real financial rewards and benefits in doing so, not to mention the feel-good factor and social benefits which arise.
Many people may decide to leave a portion of their wealth to a charity through their Will. By bringing forward these donations individuals can financially benefit today which maximises their overall estate and the amount of wealth which they can distribute over their lifetime.
The immediate benefits may arise from tax deductions, increased age pension benefits, increased rebates on private health insurance or a reduction in the Medicare levy surcharge. All leaving you with more money in your pocket over the long term.
Those who are on the age pension and assessed under the assets test are able to gift away $10,000 per annum, or up to $30,000 over a five year period. Donations to charities will count as a gift, and any more than this amount will continue to be classified as an asset when calculating your pension benefits. For every $10,000 donated your age pension could increase by an additional $780 per annum. If this is compared with keeping money in the bank at 2.5%, it will take 17 years to recoup your initial donation.
If this donation was made when you were earning an income you receive a tax deduction for the donation. If you are earning between $37,000 - $87,000, you save 32.5 cents for every dollar donated. Therefore your $10,000 donation only costs you $6,750 once the tax deduction is taken into account.
Another area where individuals may be better off is due to the rebate which exists on private health care insurance premiums. These have been tabled below. Should your income be towards the bottom end of each income level, a small donation may bring you down a bracket, therefore increasing your overall rebate available.
For example, if you are single, have private health cover and earn an income between $90,500 a year you may benefit from a making a small donation. Let’s say a $1,000 donation brings your income down to $89,500, you have now increased the rebate you receive on your private health insurance cover by 8.931% (26.791% - 17.861%). If your insurance premiums were $3,000 this year, you would save $267 in the year.
In isolation, a donation may result in a small dollar saving, however when multiple systems align the benefits can nearly outweigh the donation.
Not to mention your wealth is being allocated to your desired areas. As everyone’s circumstances are different it is best to talk to an adviser at RSM who can provide you with personalised advice.
Source: ATO website