1. Review your portfolio
Tax time represents a great opportunity to review your portfolio and consider a strategic re-allocation of your investments. Consider your portfolio allocations – is your portfolio heavily over- or underweight in specific sectors or stocks? Are you continuing to carry stocks that have exceeded your price targets or continue to under-perform – this may be an opportune time to re-balance. If you have an SMSF, now is the time to ensure your fund is invested in line with your documented investment strategy.
2. Offset capital gains with capital losses
Generally, if you have incurred capital losses on your investments, you can offset these capital losses against any capital gains you have made. You can also use losses you have carried forward from previous years. Just remember, income losses can only be offset against income; capital losses can only be offset against capital gains.
3. Consider the ideal timing of your asset sales
If you are thinking of selling a profitable asset this financial year, but are likely to earn a lower income in 2015-16, it may be worth postponing the sale until after 30 June; alternatively, if you expect an income windfall or higher salary from 1 July, it may be worth bringing the sale forward. As always, these decisions depend on your expectations for future asset prices, so don’t postpone a sale for tax purposes if you are expecting your investment to fall in value!
4. Make tax deductible super contributions
If you earn less than 10% of your income from eligible employment (eg you are self-employed or not employed), you are generally able to claim a tax deduction for personal contributions to superannuation. As always with super, you will need to be eligible to contribute to superannuation (which means you are under the age of 65, or under 75 and meeting the work test), and be comfortable having your contribution preserved in super until you meet a condition of release (eg retirement). If you claim a deduction for it, the contribution you make will be taxed at 15% in your super fund, so your tax saving will be the difference between your marginal rate and 15% - which could be up to 34%.
5. Get more from your salary or bonus
If you are expecting a pre 30 June bonus, you may be able to sacrifice your pre-tax salary or bonus into super rather than receive it as cash. As with the deductible contributions above, this could reduce tax on your salary or bonus by up to 34%, and will allow you to take advantage of the contribution caps that apply in this financial year. Once your money is invested in super, tax on earnings is capped at 15%, which may compare favourably to investments held in your own name.
6. Use super to manage Capital Gains Tax
If you make a capital gain on the sale of an asset this financial year and earn less than 10% of your income from eligible employment, you may be able to claim a tax deduction for a contribution to superannuation, which could reduce or offset your capital gain.
7. Pre-pay investment loan interest
If you have (or are considering establishing) a geared investment portfolio, you can pre-pay 12 months’ interest on your investment loan and claim the cost as a tax deduction in the current financial year. This can assist you to manage your cashflow more efficiently, and potentially reduce your income tax liability this financial year.
8. Get a super top up from the Government
If you earn less than $49,4881 pa, of which at least 10% is from employment or a business, make a personal after-tax super contribution, you could qualify for a Government co-contribution of up to $500.
9. Boost your partner’s super and reduce your tax
If you have a spouse who earns less than $13,8001 pa, consider making an after-tax super contribution on their behalf, and you could receive a tax offset of up to $540.
10. Pre-pay your income protection premiums
If you are employed or self-employed, income protection insurance provides peace of mind about the security of your income in the event you are unable to work due to illness or injury. Premiums for this insurance are generally tax deductible; prepaying your annual premium prior to 30 June will allow you to claim a full year of cover in advance.
It pays to be tax smart. It really does.
No matter what your situation, age or income, a little bit of End of Financial Year planning can go a long way. It can help you:
- boost your retirement savings;
- maximise your Government entitlements; and
- minimise your tax liabilities.
As always, preparing your portfolio for tax time should always occur in the context of a well-constructed strategy to create, grow or protect your wealth.
Need some assistance? Contact Us and one of our Planners can sit down and look at what strategies best suit you.