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. As of 1 July 2017, the superannuation concessional limit was cut back to $25,000 for everyone. The non-concessional (after tax) contribution limits were also reduced from $180,000 to $100,000 per annum. Refer to this guide from the ATO and remember to lodge a notice intention to claim a tax deduction if you want personal contributions to be treated as part of your concessional cap.
If you contribute up to $1,000 as a non-concessional contribution and your income is below $51,813, you could be eligible for $500 cash boost to your super from the government. This is called the super 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!
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 insurance 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 and are running it in 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. 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 from an accountant or adviser. Thinking about these issues now means action can be taken before it is too late. Prevent potentially costly mistakes by being on top of the superannuation changes.
Rob Gilmour is the Managing Principal of MORE Wealth Management. 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.