This financial year is almost over, but there are still tactics you may be able to employ to make sure you pay the right amount of tax for the 2018-19 year. While the best strategies are adopted in July (that is, as early as possible in a financial year and not at the end), it’s worth remembering proper tax planning is more than just sourcing bigger and better deductions. The best tips involve assessing your current circumstances and planning your associated income and deductions.
Not all of the following tips will suit your specific situation, but should provide a list of possibilities that may get you thinking along the right track.
Expenses stemming from your rental property can be claimed in full or in part, so it can be helpful to bring forward any expenses that can be undertaken before June 30 and claim them in the current financial year. If you know that your investment property needs some repairs, some gutter clean up or some tree lopping, for example, see if you can bring the maintenance and (deductible) payments into the 2018-19 year. Remember however that travel to inspect an investment property is no longer on the deduction table.
Pre-pay investment loan interest
If you have some spare cash, then see if you can negotiate with your finance provider to pay interest on borrowings upfront for the investment property or margin loan on shares (or other loan types), and allow a deduction this year. Most taxpayers can claim a deduction for up to 12 months ahead. But make sure your lender has allocated funds secured against your property correctly, as a tax deduction is generally only allowed against the finance costs incurred for the purpose of earning assessable income from investments.
Bring forward expenses; defer income
Try to bring forward any other deductions (like the interest payments mentioned above) into the 2018-19 year. If you have planned that next year you will be earning less due to maternity leave or going part-time, for example, then you will be better of bringing forward any deductible expenses into the current year.
An exception will arise if you expect to earn more next financial year. In that case it may be to your advantage to delay any tax-deductible payments until next financial year, when the financial benefit of deductions could be greater. Tax planning is the key, as your personal circumstances will dictate whether these measures are appropriate.
Some creative professionals receive their income in advance. For examples, arts grants. It may be possible to defer ‘unearned income’ to next financial year if you are able to show when the income is likely to be earned (i.e., when the work will be done).
It’s probably leaving it a bit late to adopt these strategies now, but consider for July a tactic that can take advantage of this sort of timing — and place money into a term deposit that matures after June 30. Then interest accrues to you in the next tax year.
Use the CGT rules to your advantage
If you have made and crystallised any capital gain from your investments this financial year (which will be added to your assessable income), think about selling any investments on which you have made a loss before June 30.
Doing so means the gains you made on your successful investments can be offset against the losses from the less successful ones, reducing your overall taxable income. So if you have made significant gains from disposing shares or cryptocurrencies, then check your holdings which appear to running at a loss.
Keep in mind that for CGT purposes a capital gain generally occurs on the date you sign a contract, not when you settle on a property purchase or share transaction. When you are making a large capital gain toward the end of an income year, knowing which financial year the gain will be attributed to is a great tax planning advantage.
Tax deductible voluntary superannuation contribution
If you’ve made or are making an after-tax contribution into your super, you may be able to claim a tax deduction at tax time.
Employees can claim a tax deduction on after-tax super contributions they’ve made (such as when you transfer funds from your bank account into your super fund). A few years ago, only the self-employed, unemployed, retirees, or those who earned less than 10% of their income as an employee, could claim a tax deduction on an after-tax super contribution, but now it’s an opportunity a lot more people can take advantage of if they choose to.
You can make an after-tax super contribution a variety of ways, such as using money from your regular bank account, savings, an inheritance, or from the proceeds of the sale of an asset.
You can then claim a tax deduction on the amount of that contribution in your tax return, which may be beneficial as these contributions will only be taxed at 15% if you earn under $250,000 a year, or 30% if you earn $250,000 or more a year, which is often lower than what most people pay on their taxable income.
In addition, there could be further tax benefits as investment earnings made inside the super environment also benefit from an equivalent tax saving, which could make a big difference when you do eventually withdraw your super savings and retire.
Putting money into super and claiming it as a tax deduction is of particular benefit if you receive some extra money that you’d otherwise pay tax on at your full marginal tax rate.
Likewise, if you’ve sold an asset that you have to pay capital gains tax on, you may decide to contribute some or all of that money into super, so you can claim it as a tax deduction, which could reduce or even eliminate the capital gains tax that’s owing altogether.
Note: it is important that your contribution reaches your fund before 30 June 2019 which is on a weekend this year. So pay it before 25 June and remember to submit an Intention to claim a deduction form.
Of course, tread carefully and don’t let mere tax drive your investment and superannuation decisions. You must determine whether these strategies will suit your circumstances and we recommend seeking independent financial planning advice before making a decision.
These tips are only general in nature. Contact us for further information or for advice which is specific to your circumstances.