Tax cuts not so insignificant if used wisely

From 1 July, the recent Federal Budget tax cuts put more money in people’s pockets – up to $750 a year for most taxpayers. Equating to just $14.42 per week, it’s easily frittered away – perhaps without even being noticed. But if applied to the right financial strategy, such small amounts can be used to create much greater value.

‘On their own, the recent personal income tax cuts may seem small and insignificant,’ said Russell Cain of xLife, ‘but when used cleverly to create a financial planning strategy the value is much more significant.’

For example, just $14.42 a week could be used to pay the premiums on a Life Insurance policy worth around $1.1 million*. Most of us do not have sufficient Term Life Insurance to cover our families if something happens to us, so such a sum would go a long way to providing protection.

Or it could be used to buy income protection, disability or trauma insurance cover. There are other strategies too where even small sums can be used to make a real difference to people’s financial wellbeing. The tax cuts could be used to start a savings program, increase payments on credit cards or personal loans, make an after-tax super contribution, or increase payments on a home mortgage.

If used to increase home loan payments, the benefit is felt both in dollar terms and in time saved. Assuming a home loan balance of $200,000, interest rate of 7.15% per annum and current repayments of $685 per fortnight, the remaining loan term is 22 years 9 months and the total cost $405,116. But if tax savings are used to increase payments to $713.85 a fortnight, just over two years is taken off the term to provide savings of $22,560.

Instead of disregarding the recent tax cuts as too small to be significant, we urge people to consider their options for using their tax cuts wisely to build wealth or protect their family. A financial adviser can offer various life insurance quotes and help people decide which is the best strategy for their own particular circumstances.

*Based on an Asteron death cover policy for a 40-year-old non-smoking man with premiums paid annually.

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December 2009