Although there are just a few weeks to go before the end of the financial year, there are still steps that can be taken to minimise tax liabilities, said Peter Bembrick, tax partner with HLB Mann Judd Sydney.
“It’s not too late to take action to reduce your tax bill – after all, there’s no point in paying more tax than you absolutely need to.
“Some simple steps can still make a difference,” he said.
Five top tips include:
1. Make additional superannuation contributions
While there is still uncertainty around whether the superannuation changes proposed in the Federal Budget in May will come into effect, for most people it is still worth considering making additional tax deductible contributions to superannuation.
“If the Government has its way, the annual concessional contribution cap will be lowered to $25,000 for everyone from 1 July 2017. Therefore anyone who has the ability to do so, should consider making additional deductible contributions.
“Make sure that the contribution is sent to the superannuation fund well before 30 June, as the contribution is dated from when the fund receives it, not when it is sent,” Mr Bembrick said.
2. Review deductible versus non-deductible debt
“It’s a good idea to pay down non-deductible debt, such as a mortgage, wherever possible, as no tax deduction can be claimed on this debt,” Mr Bembrick said.
“However deductible debt, such as a loan on an investment property, can be claimed as a tax deduction. One strategy is to take out an interest-only loan for investment purposes, and then make all principal repayments against the home loan and any other non-deductible debt. This is a sensible strategy, and perfectly acceptable to the ATO when set up properly.
“However be careful about restructuring debt solely to avoid tax, as this could attract the attention of the ATO.”
3. Prepay deductible expenses at 30 June for up to 12 months
It can seem a minor thing, but it’s still worth doing – claim up to 12 months of prepaid expenses, for example, interest on investment loans and management fees.
“The idea is to make make any tax-deductible payments, such as donations, subscriptions and income protection insurance premiums, before 30 June to ensure that they make it into this year’s tax return.”
Mr Bembrick said that, as with super contributions, it’s important to make the payments well before year end.
“For instance, a donation to a charity is recorded as the date it is received, not the date it is sent, so any cheques or payment forms should be sent a week or two before 30 June to make sure they count in this financial year, not next.”
4. Consider tax advantaged investments
“From a tax point of view, an investment that returns discount capital gains or fully franked dividend income is a more effective option than an investment with the same return but without this tax advantage.
“While no investment should be entered into purely on the basis of its tax treatment, taking the tax outcome into account is important,” Mr Bembrick said.
Listed investment company dividends can be tax-effective for individuals, family trusts or super funds. They are usually fully franked and they also come with an associated tax deduction designed to give shareholders the benefit of the CGT discount for investment assets that the company has sold.
5. Review health insurance options
As with investment decisions, taking out private health insurance should not be driven by tax considerations, but it’s important to understand the impacts,” Mr Bembrick said.
The Medicare levy surcharge applies an extra 1 per cent tax for singles earning over $90,000, or couples earning over $180,000. This rises to 1.25 per cent at higher income levels, and up to 1.5 per cent for singles earning over $140,000 and couples earning over $280,000.
“The surcharge can be avoided if the family takes out the appropriate level of hospital cover with an approved health fund,” Mr Bembrick said.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and a member of the HLB Mann Judd Australasian Association.
For more information please contact:
Phone: 02 9020 4223