Time to plan for a good finish for EOFY and here are 10 tips to get started and prepare for 30 June.
1. Consider the ideal timing for asset sales
If you are thinking of selling a profitable asset this financial year, but are likely to earn a lower income in the next year 2015-16, it may be worth postponing the sale until after 30 June; however, if you expect an income windfall or higher salary from 1 July, it may be worth bringing the sale forward. As always, your 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!
2. 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, 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.
3. 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 to manage cashflow more efficiently, and potentially reduce your income tax liability this financial year.
4. Pre-pay 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 as a tax deduction.
5. 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, and make a personal after-tax super contribution, you could qualify for a Government co-contribution of up to $500.
6. 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.
7. 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. 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).
8. 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 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%.
9. Review your portfolio
Review your portfolio and consider a strategic re-allocation of your investments. Consider portfolio allocations – is your portfolio heavily over- or underweight in specific industry sectors or stocks? Are you continuing to carry stocks that have exceeded your price targets or continue to under-perform – this may be an opportunity 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 – your auditor will be confirming this after 1 July.
10. Offset capital gains with capital losses
Generally, if you have incurred capital losses on your investments, you are able to offset these capital losses against any capital gains you have made. You can also use losses you have carried forward from previous years. Remember, income losses can only be offset against income; capital losses can only be offset against capital gains.
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