Tax Strategies
Getting set for year end
Most tax specialists agree it’s a good idea to plan your tax decisions well before June comes around to make sure you have time to implement any actions in plenty of time to reap their benefit.
Here are some ideas on extracting tax benefits from your existing arrangements you may like to discuss with your tax adviser:
Investment property owners
For example, if you have an investment property make sure you claim against your income everything you’re eligible to claim. For example, interest on the loan to fund the property is tax deductible, generally speaking. You may be in a position to pre-pay interest relating to the next financial year before 30 June. If that’s the case, the whole interest amount qualifies as a tax deduction in the current tax year.
Borrowing expenses, such as loan application fee, mortgage insurance and stamp duty on the loan, can be spread over 5 years or the term of the loan, whichever is shorter.
Building allowance, which is depreciation on the cost of the building and landscaping, is allowable at 2.5% a year for residential properties. Since this probably represents a significant tax benefit over the life of your property investment, you may find it worthwhile to engage a quantity surveyor to work out the base value. As an added bonus, the surveyor’s report is likely to be an allowable deduction as well.
If you’re a PAYG taxpayer, you may be able to reflect the value of the tax deduction on your investment property in your salary, in the form of a lower amount of tax deducted each pay, giving you more money in the hand through the year.
Superannuation
For the record, super is not an investment. Rather it is a vehicle through which you can hold investments/assets in a tax-advantaged environment. That said, let’s look at ways super can help reduce your annual tax bill. Again, these ideas should be discussed with your tax adviser.
Salary sacrifice
Contributing to your super via salary sacrifice reduces your assessable income, which in turn reduces the amount of income tax payable. Plus, since the contributed amount only attracts tax at the rate of 15%, rather than your marginal tax rate, a larger sum is able to grow, again in a tax-advantaged environment.
Spouse contribution
If you meet the eligibility conditions, you’ll be entitled to claim a tax offset if you contribute to your spouse’s super. So your spouse’s super benefit gets a boost, and you’ll be in line for a reduction in tax payable. Talk to your tax adviser for full details.
New investments
Considering dipping a toe back into the long term investment market? It’s probably the right time to do your homework on tax-advantaged investments.
Remember, you should never make an investment decision purely on the basis of tax. But if an investment opportunity stacks up on all other measures – liquidity, reputable manager with strong track record, appropriate prospective return for level of risk, suitable time horizon for your requirements, etc – then its tax advantages represent nice icing on the cake.
For example, the agribusiness investment opportunities recommended by Outlook advisers make sense for a range of investors on the basis that they provide a predictable income over many years, with relatively low risk and have low correlation to other asset classes, which means they boost the level and extent of diversification of the investor’s portfolio.
The fact that the initial investment is fully tax deductible gives rise to a number of other favourable financial planning outcomes. Talk to your Outlook adviser to find out how they can work for you.
New deductions
If you have school-aged children, you may be entitled to claim up to $750 for education-related expenses, other than school fees or uniforms. For example, if you’ve bought your school child computer equipment, or funded internet access which is used for study purposes, you’ll be able to offset these expenses against your assessable income.
From a tax time planning perspective, if you’re thinking about purchasing such items at some time in the future, you may find it’s worthwhile bringing the purchases forward into the current financial year, so you can claim against this recently introduced concession.
Summary
Make sure you pay only the amount of tax you should – no more, no less. Whether an employee or a business operator, maintain documentation of your outgoings, with explanations of how each relates to your income earning activities, so your tax adviser can make sure you claim all you’re entitled to.