Jera Conde

Debt, a Tax-Deductible Path to Wealth or a Consumer Trap

· ·

Sarah borrowed $700,000 at 5.8% to purchase an investment property that generates $650 in weekly rent, with tax-deductible interest. Next door, Marcus owes $18,000 across three credit cards at 20% interest, funding holidays and new furniture. Both have debt. Sarah is building wealth tax effectively, while Marcus is hemorrhaging money to interest charges.

The distinction between good and bad debt is defined primarily by mathematics and opportunity cost.

When borrowing builds wealth

Good debt has a simple litmus test. Does it generate income or appreciate in value faster than the cost of borrowing?

With the RBA cash rate now at 3.85% following February 2026’s increase, investment property loans typically sit around 5.5-6.5%. Yet this debt can still be “good” because:

  • The interest is tax-deductible: If you borrow to acquire an income-producing asset like a rental property or shares that pay dividends, you can claim the interest as a deduction. At a 32% marginal tax rate (including Medicare levy), a $40,000 annual interest bill effectively costs you $27,200 after tax.
  • The asset (usually) appreciates: While property values fluctuate, Australian capital cities have historically delivered long-term growth that often exceeds borrowing costs.
  • Rental income reduces your net cost: A well-selected investment property with strong rental yield can be cash-flow neutral or even positive, meaning tenants are essentially paying down your debt while you build equity.

Business loans used to expand operations or investment loans used to invest in dividend-paying shares, can also qualify as good debt if structured properly, although they carry higher risk and require more sophisticated management.

Here’s the kicker. Good debt requires discipline. The moment you redraw from your investment loan to fund a European holiday, that portion becomes bad debt, the interest is no longer deductible because it’s not being used for income-producing purposes.

The true cost of consumer debt

Bad debt is borrowing funds for consumption rather than wealth creation. The average credit card interest rate in Australia currently sits around 18.5%, with many rewards cards exceeding 20%.

Recent data shows the average unpaid credit card balance has jumped to $1,780, up 10% in just 12 months. At 22% interest, paying this off over 24 months means you’d pay $436 in interest on top of the original $1,780 debt. That’s money that could otherwise have been building your emergency fund or contributing to super.

The psychology of consumer debt is insidious. Research shows people spend approximately 15-20% more when using credit cards versus cash, because the payment feels abstract. Then compound interest works against you. That $2,000 designer handbag purchased on a credit card becomes a $2,600 handbag if you only make minimum repayments over three years.

Buy Now, Pay Later services have added yet another layer. While technically interest-free if paid on time, late fees compound rapidly, and the ease of access can lead to overconsumption.

Debt reduction strategies that work

If you’re carrying consumer debt, choosing the right payoff strategy can save thousands in interest and years of repayments.

  • The Debt Avalanche Method (mathematically optimal). List all debts by interest rate from highest to lowest. Pay the minimum amounts on everything and direct all extra funds to the highest-rate debt first. Once that’s cleared, roll that payment into attacking the next highest rate. This saves the most money in interest charges, costing you less in the long run, but requires discipline.
  • The Debt Snowball Method (psychologically powerful). Focus on paying off your smallest debt first, regardless of interest rate. Make minimum payments on all debts but put extra money towards the smallest balance. Once paid, roll the payment into the next smallest debt. Research in behavioural finance suggests that small victories lead to higher completion rates for many people, even if total interest paid is higher.

Which works better? The one you’ll actually stick with. If you’re motivated by quick wins and need momentum, snowball it. If you’re disciplined and focused on reducing interest, use the avalanche. Some people even combine both, clear one small debt for the psychological win, then switch to the avalanche approach for remaining balances.

Your next move

Take 15 minutes this week to list every debt you carry, including the balance, interest rate, and whether it’s tax-deductible. Then ask yourself: “Is this debt making me money or does it cost me money?”

  • For good debt, ensure you’re making the most of any available tax benefits and that the underlying asset is performing.
  • For bad debt, choose a payoff strategy today and commit to it.

The difference between financial progress and financial stress often comes down to knowing which debt to embrace and which to eliminate aggressively.

Franked Dividends, Australia’s Hidden Wealth-Building Advantage

· ·

What are franking credits?

Australian dividend investing has a distinct advantage over most international markets, and it comes down to one key feature. Franked dividends. Franked dividends are payments from Australian companies that have already paid tax, and this tax is passed to the shareholder as a “franking credit”. Franking credits are tax credits representing the 30% company tax already paid on profits before dividends are distributed, preventing double taxation.

Types of franking

  • Fully franked: The entire dividend carries the maximum credit, as 100% of the tax has been paid.
  • Partly franked: Only a portion of the dividend has tax paid, so it carries a partial credit.
  • Unfranked: No tax has been paid by the company on this portion, so it’s taxed as regular income.

How this benefits Australian investors

Investors report the grossed-up dividend (cash + credit) in their tax return and use the credit to reduce their personal tax liability, potentially receiving a refund if their personal marginal tax rate is lower than the company’s. This system, also called imputation, benefits investors by reducing their final tax bill.

For example, when you receive a fully franked $700 dividend, there’s an attached $300 franking credit, bringing your total taxable income to $1,000.

The mathematics becomes compelling at different tax rates:

  • If your marginal rate is 30%: You owe $300 tax on that $1,000, but the franking credit offsets this completely, the income is effectively tax-free.
  • If your rate is below 30% (e.g. retirees, low-income earners): You receive a cash refund for unused franking credits. The ATO automatically processes franking credit refunds for eligible individuals through the tax return system. From 2025, the ATO automatically refunds franking credits to eligible individuals over 60.
  • If your rate exceeds 30% (high earners): You pay only the difference, a $700 dividend at a 37% marginal rate means paying just $70 additional tax.

For example, when factoring in franking credits, BHP’s forecast 5% dividend yield becomes a 7.5% grossed-up yield, transforming good returns into exceptional ones for Australian residents.

Further resources:

Your 50’s Insurance Audit. Stop Overpaying for Yesterday’s Risks

· ·

Christine, 52, recently discovered she was paying $18,000 annually for insurance policies designed when her twins were toddlers. Her mortgage is now $120,000 (not $450,000), her kids earn their own salaries, and her super balance sits at $380,000. Yet she’s still insured as though she’s a 35-year-old single parent carrying maximum debt. Premiums can nearly double from your 30s to 50s, making this the critical decade to audit your coverage ruthlessly, before escalating costs devour your retirement savings.

Your 50s demand a calculated insurance audit and reassessment. As you approach retirement, you’re more likely to have accumulated assets, paid-off liabilities, and children who’ve left home, meaning your need for insurance can be reduced significantly. But “can reduce” doesn’t mean “should disappear”; rather, it means getting strategic about what protects your current financial position.

Life insurance needs as children become independent

The textbook advice says once kids are financially independent and debts are cleared, life insurance becomes optional. Reality is often messier.

Today, your adult children may have left home, but if they lose their jobs, return to study, or return home due to separation or divorce, you can soon be supporting them again, on top of potentially being responsible for grandchildren. The “boomerang generation” is real, and 50-something parents increasingly find themselves providing financial scaffolding well beyond their children’s 18th birthdays.

Beyond dependents, consider these often-overlooked scenarios where life cover in your 50s remains essential:

  • Investment property debt: While your family home might be paid off, you may have taken on debt to buy other properties or investments whose value could be severely diminished if you had to sell prematurely because debt could no longer be serviced.
  • Equalising inheritances: If one child inherits the family business or farm, life insurance can fund an equivalent inheritance for siblings, helping to eliminate the need for securing a loan to buy out the business or farm from siblings.
  • Partner’s retirement security: Without a steady income, you need to ensure that your partner can afford to live out the retirement plans you’ve made together, particularly if one of you plans to retire earlier or has a lower super balance.

The key question isn’t “Do my kids still need me?” but rather “What financial obligations would my death create or leave unresolved?” If the honest answer is “significant ones,” life cover still has a role.

The coverage sweet spot

Rather than maintaining the $1.5 million policy you needed at 35, recalculate based on actual current debts, final expenses, and partner’s income replacement needs. Many 50-somethings find they need 40-60% of their previous coverage, enough to be meaningful without premium costs that undermine retirement savings.

Consider stepped versus level premiums: level premiums cost more initially, but can potentially save thousands in your 60s when stepped premiums skyrocket.

Income Protection vs Total and Permanent Disability (TPD) as retirement approaches

Here’s where the math gets interesting, and where many people get their strategy completely wrong.

Income Protection replaces a portion of your income if illness or injury stops you from working, with payments beginning well before a condition becomes permanent.

TPD insurance pays a one-off lump sum if you become totally and permanently disabled and unable to ever work again, typically requiring you to be unable to work for 3-6 months.

The critical consideration: TPD insurance cover in super usually ends at age 65, while life cover usually ends at age 70. If you’re 55 and planning to work until 67, that creates a significant two-year coverage gap, unless you’ve arranged cover outside super that continues beyond 65.

The strategic shift for 50-somethings:

  • Income Protection becomes more expensive and less valuable: If you’re planning to retire at 60-65, paying for income protection with a benefit period to age 65 means you’re insuring an ever-shrinking working window. Consider reducing your benefit period to 2-5 years rather than “to age 65”; this can cut premiums while still protecting against medium-term income loss.
  • TPD remains crucial: If you have income protection with a benefit period to age 65, you may need less TPD insurance because you could receive 70% of your income to age 65 if required. However, lump-sum TPD insurance can help make up the remaining 30% income shortfall, repay debt, and cover medical costs related to permanent disability.
  • You can claim both simultaneously: If you have cover for both income protection and TPD, you can usually claim both; the claims do not typically impact each other (if they are held outside super). Income protection provides a monthly cash flow while your TPD claim is assessed, and then the TPD lump sum addresses long-term financial restructuring.

The retirement horizon calculation

At 55 with 10-12 working years remaining, income protection covering 60-70% of your salary for the next decade costs roughly $4,000-$7,000 annually (depending on occupation and health). That’s $50,000-$84,000 in total premiums to protect perhaps $800,000 in future earnings. The mathematics works, provided you can afford the premiums without compromising your superannuation contributions. For many, the smarter play is reducing income protection to a shorter 2-year benefit period while maintaining TPD cover for catastrophic scenarios.

Estate planning considerations

Insurance doesn’t exist in isolation; it’s a wealth transfer mechanism that intersects critically with your estate plan. Get this wrong in your 50s, and you create tax nightmares or family conflict.

Binding death benefit nominations are essential

Superannuation does not automatically form part of your estate, and without a valid death benefit nomination, it may not be distributed according to your wishes. If you have life insurance held within super (and many Australians do), that death benefit follows your super’s beneficiary nomination, not your will.

A binding beneficiary nomination is legally binding and directs the trustee on exactly who receives your super and insurance benefits. Standard binding nominations are valid for 3 years and require two adult witnesses. When did you last check yours?

Tax implications can be brutal

Death benefits paid to tax dependants (spouse, children under 18, financial dependants, interdependent relationships) are tax-free. However, benefits paid to non-tax dependants, such as adult children who aren’t financially dependent, can be taxed at up to 30% plus the Medicare levy.

The classic mistake: John nominates his financially independent adult children ahead of his spouse in a binding nomination. The children receive the $400,000 insurance payout but pay $120,000+ in tax. Had John nominated his spouse (tax-free) or directed the benefit to his legal personal representative to be distributed via his will (potentially tax-free through estate planning), that $120,000 stays in the family.

Coordinate your documents

Your life insurance and superannuation nominations should align with your will and any trusts, as any contradictions between these documents can lead to legal complications and family disputes. If your will leaves everything equally to three children but your binding super nomination gives 100% to your new partner, you’ve created conflict and potentially disinherited your kids from your largest asset.

Your action plan

Log into your super fund/s and answer three questions:

  1. What insurance do you have, and how much are you paying?
  2. When does your binding death benefit nomination expire?
  3. Do your nominations align with your will and current family situation?

In your 50s and 60s, you need to continue reviewing your level of insurance against your current and foreseeable needs on a regular basis. Given the rapidly increasing cost through this period, you cannot afford to simply accept it as an ongoing cost.

The difference between protecting your family and wasting $100,000+ in unnecessary premiums or taxes comes down to conducting this audit and taking action today.

Make the most of End of Financial Year opportunities 2025/26

· ·

With the end of the financial year fast approaching, there may be some valuable opportunities that are worth discussing with your financial planner. Depending on your personal circumstances, there potentially are some beneficial planning strategies you can implement before 30 June 2026.

Important: Certain eligibility requirements may apply to strategies listed below.

To avoid potential penalties, we strongly recommend seeking advice from your financial planner before implementing any of these strategies.

Self-managed superannuation

Pensions

If you currently receive a pension, check that you have withdrawn at least the minimum pension before 30 June 2026. If you fail to do so, the account will be considered to be in accumulation phase for the whole financial year, with up to 15% tax applied to the earnings and realised capital gains.

If you have not commenced a pension yet and with the upcoming indexation of Transfer Balance Cap (TBC) from $2m to $2.1m in July 2026, there may be an opportunity for you to transfer more to the pension account if you defer commencement until on or after 1 July 2026, instead of commencing before 30 June 2026.

Future opportunities to transfer more to your pension

If you start your first retirement phase income stream on or after 1 July 2026, your TBC should be $2.1 million. If you commenced your retirement phase income stream/s prior to this date and have not reached or exceeded your personal TBC, you may benefit from July 2026 indexation, but only on a proportional basis. This may allow you to transfer more to a tax-free pension.

Reserving

Concessional contributions made in June 2026 can be allocated immediately to a member’s account (to count against this Financial Year’s cap) or added to a contribution reserve and then allocated to the member’s account in July 2026 (within 28 days from the start of the financial year) to count against next Financial Year’s cap [ATO TD 2013/22]. This may help to bring forward tax deductions if you can claim personal tax deductions for contributions.

Investment strategies

Review your SMSF investment strategy to ensure it is still current and relevant. Document this review in trustee minutes and make any changes necessary to the documentation.

In-house assets

Ensure that in-house assets do not exceed 5% of total assets as at 30 June 2026.

Superannuation contributions

Non-concessional contributions

If you are below the age 75, you are able to make non-concessional contributions to superannuation and even utilise the bring forward arrangement without having to meet the work test.

To be able to make non-concessional contributions before 30 June 2026, your Total Superannuation Balance (TSB) on 30 June 2025 must have been below $2m. The following table explains potential amounts that may be brought forward based on the TSB on 30 June 2025 (assuming you were below age 75 on 1 July 2025 and you are below age 75 at the time of making the contribution):

Financial Year 2025/2026
TSB at 30th June 2025Maximum contribution
$0 to less than $1.76 million$360,000
$1.76 million to less than $1.88 million$240,000
$1.88 million to less than $2 million$120,000
$2 million and overNil

Future opportunities to make non-concessional contributions

If you currently do not meet the requirements to make non-concessional contributions to super due to your TSB being in excess of the current cap of $2m, you may have an opportunity to revisit the strategy post 1 July 2026, as the TSB cap will increase from $2m to $2.1m on 1 July 2026. In addition to the increase to TSB threshold, the annual cap for non-concessional contributions will also increase from $120,000 to $130,000 on 1 July 2026.

These changes may allow you to delay triggering the 3 year bring forward rule until after 1 July 2026 and contributing up to $390,000 after 1 July 2026, as opposed to contributing up to $360,000 if the bring forward is triggered before 30 June 2026.

Concessional contributions

Consider maximising concessional contributions to take advantage of the full concessional contribution cap.

The annual concessional contributions cap is $30,000 per person for the financial year in 2025/26. Carry forward rules may be used if your TSB was below $500,000 on 30 June 2025, and if you have unused concessional caps from previous financial years (starting from the FY 2020/21).

If eligible and you’re below age 67 you are able to make these contributions without having to meet the work test.

If eligible and you’re aged between 67 & 75, you must meet the work test or meet the one-off work test exemption rules to be able to make personal deductible contributions.

If you’re eligible to claim a tax deduction for personal contributions, you need to ensure the contributions are received by the fund before 1 July 2026, or even earlier as certain super funds will have their own cut-off times. Before claiming the deduction, you should also ensure you have lodged a notification of the intention with the super fund trustee.

If you are salary sacrificing to super, you should check your available cap space for concessional contributions as soon as possible and consider reducing or ceasing salary sacrifice contributions if these are likely to result in you exceeding the annual cap. As the rate for superannuation guarantee contributions increased on 1 July 2025, your employer would have been paying your mandatory super contributions for the current year based on the increased rate, and as such, the available cap space for amounts being salary sacrificed may have reduced.

Future opportunities to make concessional contributions

The annual cap for concessional contributions is set to increase from $30,000 to $32,500 on 1 July 2026. If you are not maximising the annual cap already, consider this for next year. The increase in the annual cap will allow eligible individuals to build their retirement savings tax effectively.

Co-contribution

If your income is below $62,489, consider making a non-concessional contribution to receive a co-contribution. The co-contribution is paid at the rate of 50 cents for each eligible dollar contributed. The maximum co-contribution of $500 is available if your income is below $47,488.

However, there are a few other requirements to be met before the co-contribution can be paid.

Spouse contribution

If one member of a couple has income of less than $40,000, the other spouse may be eligible to contribute up to $3,000 into their spouse’s super and receive a tax offset of up to $540.

However, there are other requirements to be met before making a spouse contribution and accessing the tax offset.

Super splitting

If you’re eligible and want to split the concessional contributions made during the previous financial year, you must submit a request to your super fund by 30 June of the current financial year.

Transition To Retirement (TTR) strategy

TTR strategy

If you’re reaching age 65 between now and 30 June 2026 with balances of close to $2m in the TTR pension, you may wish to consider speaking to your financial planner as there may be an opportunity for you to take advantage of the upcoming indexation of the Transfer Balance Cap and transfer more to a tax free pension on or after 1 July 2026.

Services Australia (previously known as Centrelink)

Gifting

The gifting limit of $10,000 applies per financial year (up to $30,000 in any 5-year period). If you wish to make a gift to a family member (or other person or entity) and have not used the limit this year, you may wish to make the gift of up to $10,000 before 1 July 2026 so the full limit becomes available again in July.

Taxation

Tax-deductible expenses

Prepayments can be made for up to 12 months of deductible expenses to bring forward the tax deduction.

Offset capital gains/losses

If your assets have been sold during the year that realised either a capital gain or loss, a discussion with your financial planner or tax accountant may be beneficial, as there may be an opportunity for you to better manage the overall tax outcome.