The end of financial year is almost here! Now is the time to review what strategies you can use to minimise your tax.
1. Maximise Deductible Super Contributions
Individuals can now make tax-deductible personal contributions to superannuation to reduce their taxable income. The advantage of this strategy is that superannuation contributions are taxed at 15% or 30% compared to typical personal income tax rates of between 34.5% and 49%.Superannuation contributions are limited to $25,000, including the 9.5% super guarantee paid by your employer. Ensure you do not exceed this limit as any contributions in excess can be taxed at a rate of up to 49%, plus an excess concessional contributions charge.
2. Ownership of Investments
Are your investments held in the right structure? A longer term tax planning strategy can involve ensuring the tax effective ownership of your investments.
Investments may be owned by a Family Trust, which has the key advantage of providing flexibility in distributing income on an annual basis. It also has an ability, for up to $416 per year, to be distributed to children or grandchildren tax-free.
Any change of ownership needs to be carefully planned due to capital gains tax and stamp duty implications. Please seek advice from your accountant prior to making any changes.
3. Property Depreciations Report
If you have an investment property and don’t have a Property Depreciation Report, you may be paying more tax than you should.
A report prepared by a Quantity Surveyor will allow you to claim depreciation and capital works deductions on capital items within the property and on the property itself. The 2017 budget changed the rules on what you can claim when you purchase a second hand property, but it is probably still beneficial for you to get a report.
The cost of this report is generally covered by the tax saving in the first year of claim and some report providers guarantee they will find more in savings then the cost of their report or your report is free.
4. Motor Vehicle Log Book
Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2018. You should make a record of your odometer reading as at 30 June 2018, and keep all receipts/invoices for your motor vehicle expenses. Once prepared, a log book can generally be used for a 5-year period.
An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.
5. Sacrifice your Salary to Super
6. Prepay Expenses and Interest
7. Insurance Premiums
Possibly your greatest financial asset is your ability to earn an income. Income protection insurance generally replaces up to 75% of your salary if you are unable to work due to sickness or an accident. The insurance premium is normally tax deductible, plus you get the benefit of protecting your family’s lifestyle if you cannot work due to sickness or an accident. It’s a small price to pay for peace of mind. Similar to rental property interest, income protection premiums can also be pre-paid for 12 months to increase your deductions.
8. Work Related Expenses
Don’t forget to keep any receipts for work-related expenses such as uniforms, training courses and learning materials, as these may be tax-deductible.
9. Realise Capital Losses and Defer Capital Gains
Tax is normally payable on any capital gains. You should consider selling any non-performing investments you hold before 30 June to crystallise a capital loss and reduce or even eliminate any potential capital gains tax liability. Unused capital losses can be carried forward to offset future capital gains.
If practical, arrange for the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2018. The Contract Date (not the Settlement Date) is generally the key date for working out when a sale or purchase occurred.
10. Qualify for a Government Co-Contribution
If your total income is less than $51,813 you may be eligible for a super co-contribution from the Federal Government. For each dollar in personal after-tax super contributions, the Government will contribute from 50 cents up to a maximum of $500 for those earning $36,813 or less.
For the purposes of this test, total income is assessable income plus reportable fringe benefits plus reportable employer superannuation contributions, less allowable business deductions.