With the end of Financial Year approaching, it is important to consider whether any of these strategies can reduce the drag of taxation both now, and in future years. Any time you can minimise or defer tax to a later year it means more money for you to save and invest, increasing the efficiency with which your income can be used in pursuit of your objectives.
There are a number of steps you may be able to take to reduce your taxable income this year:
- Deferring income
- If income can be deferred until after June 30 then you won’t have to pay tax on it in this financial year.
- Pre-paying expenses
- If you have business or investment expenses that can be pre-paid for next financial year, your income this year will be reduced. This might include professional memberships or other business expenses, and on the investment side could include investment loan interest.
- Salary Packaging
- If you are employed in a public or non-profit hospital and aren’t salary packaging your income, you should really look into this. Notwithstanding the proposed changes announced in the budget you may find significant tax free benefits are available to you. Even if it is too late to have any impact this year, you will benefit in future years.
- Record Keeping
- Ensure you can locate the records of your professional expenses such as education, travel, and Indemnity Insurance so you can claim these as deductions.
- Concessional (Pre-Tax) Super Contributions –
- If you are self-employed you may be able to make a contribution of up to $30K ($35K if you are over 50) to super and claim a tax deduction for it. You will pay tax on this contribution of up to 30% (includes the additional 15% payable by those earning above $300K p.a.) but this is significantly lower than the top Marginal Tax Rate of 49% (including Medicare).
- If you are employed then you can put in place an arrangement to Salary Sacrifice part of your income into super. This normally be done over the course of the year, so at this stage you may be confined to putting it in place for the next financial year, but you will benefit then.
- Pension Minimums
- If you have a superannuation pension you need to ensure you withdraw the minimum amount in order for your fund to be eligible for tax free earnings on its investments.
- Turned 65 this year?
- If you have turned 65 this financial year this is the last change to contribute up to $540,000 by using the three year bring forward non-concessional contribution cap. This can boost your super and potentially significantly reduce the tax payable on your retirement assets. This area is complex and we recommend seeking advice.
- Use your super fund to purchase your surgery
- If you own or are looking to purchase a surgery it may be worth using your super fund to do this. This might provide you with greater flexibility, reduced borrowings and a more beneficial tax environment through which to make this investment.
- Over 60?
- If you are over 60 and haven’t started a pension within super, you should strongly consider this even if you are still working. Investment earnings on super in a pension account pay zero tax making this strategy highly attractive. We recommend you seek advice before implementing a strategy like this.
Ownership of Assets
When was the last time you reviewed your business and investment structures to confirm they are still appropriate and that assets are owned in the most appropriate manner? This can be as simple as ensuring surplus cash is owned in the name of the person in a couple with the lowest level of income to minimise tax. Alternatively, it could involve reviewing the structures through which your business and other assets are owned to ensure it is as effective as possible.
Capital Gains Tax Management –
If you have a capital gains tax liability you may be able to reduce the impact of this:
- If you have other investments that you are carrying a loss on, you may wish to sell these and use the loss to offset your capital gain.
- If you are able to delay selling an asset until you have owned it for 12 months you would then be eligible for a 50% discount on your capital gain.
- Delay the sale of the asset until the new financial year, meaning the gain is not taxable for a further 12 months.
If you think you might be missing any of these opportunities feel free to contact us and we can provide you with a Second Opinion.