With the end of the financial year fast approaching, we have created a short list of 6 tips to help you get your finances in order and save tax. If you wait until after 30 June it will be too late!
1. Get deductions ready for tax time
You can claim a tax deduction for expenses incurred in earning your assessable income. It’s important to have a clear understanding of what you are entitled to claim and plan for any expenses that may be better incurred this financial year. Maybe now is the time to do some of those necessary repairs on your investment property?
2. Make superannuation contributions
If you have extra cash, think about making a concessional contribution to your superannuation and claim a tax deduction. Superannuation concessional contributions are taxed at 15% (30% if your income is greater than $250,000) and not at your marginal rates – but you must understand the rules. The superannuation concessional limit is $25,000 for everyone and the non-concessional (after-tax) contribution limits are $100,000 per annum (or up to $300,000 using the bring forward rule). The good news is that concessional contributions can now be made directly to your superannuation fund rather than relying on salary sacrifice, but remember to lodge a notice intention to claim a tax deduction to your superannuation fund!
If you contribute up to $1,000 as a non-concessional contribution and your income is below $51,813, you could be eligible for up to $500 as a cash boost to your super from the government. This is called the superannuation co-contribution, eligibility requires that at least 10% of your income must be from employment.
Finally, make sure you do not exceed what is allowed, otherwise you could end up paying more tax.
3. Manage capital gains tax
If you have made any capital gains during the financial year, this will be subject to tax. You may have other assets that are carrying a capital loss that you could sell in order to offset your gains to reduce your tax liability. Another option could be to use concessional superannuation contribution to reduce your income tax bill!
If you are selling an investment property and there is a capital gain, remember that capital gains tax will apply in the financial year the contract was signed, not at the time of settlement.
4. Prepay interest on investment loans
The ATO will allow investors to prepay up to 13 months of interest on their investment loans. This will effectively reduce your taxable income this year by bringing forward a deduction for the interest paid. This can be useful if you have had high earnings this year and you want to lower your taxable income.
5. Take out that income protection policy
The cost of income protection insurance held personally is tax deductible. Paying for a policy 12 months in advance as opposed to monthly payments will not only save you 10% or more on premiums, it will bring forward a tax deduction into this financial year.
6. Review your pension strategy
If you have an SMSF in the pension phase, make sure you have met the minimum pension withdrawal requirements.
Its good idea to review any transition to retirement pensions, where investment earnings are now subject to tax as if it were still in the accumulation phase. If you have met a condition of release you may be eligible to convert your transition to retirement pension into a completely tax-free account based pension.
There are numerous other matters worthy of consideration, depending on your personal circumstances. It is important you seek advice. Thinking about these issues now means action can be taken before it is too late.
Rob Gilmour is the Managing Principal of Wealth Simplicity. The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.