The end of the Australian financial year is quickly approaching so now is the time to think about taking action to reduce your taxable income for the year ended 30 June 2019. Here are some common strategies to consider taking action on.
Since 1 July 2017 individual taxpayers have been able to claim an income tax deduction for personal superannuation contributions made to their superannuation fund.
There is a cap of $25,000 on the amount of concessional contributions you can make each year. Concessional contributions include employer contributions, salary sacrifice and personal deductible contributions.
For example, if your employer has made $15,000 in superannuation contributions on your behalf during the year, you are eligible to make an additional $10,000 in tax-deductible superannuation contributions.
In this instance, you may want to consider making an additional lump sum payment to your superannuation fund before the end of the financial year. In order to claim a tax deduction, you must:
- Make sure payment is received by the fund prior to midnight 30 June 2019
- Complete and lodge the ‘Notice of Intent to Claim or Vary a Deduction for Personal Super Contributions’ form (this can be done prior to lodging your 2019 income tax return)
- Be under 65 (unless you meet the work test)
We always recommend you double check the amount of super you have contributed in the financial year before making any payment. If you exceed the $25,000 threshold, you will be charged Excess Contributions Tax which may defeat the purpose of making the additional superannuation contribution.
Capital gains and losses
For capital gains tax purposes, the relevant date is when the sales contract is signed. Therefore, if you are in a position to do so, you may want to consider deferring signing a sales contract until after 30 June so you can defer the CGT by a year. This gives you an additional 12-months in which you have to pay the tax and an extra year’s use of the money.
If you have derived capital gains during the year, you may want to consider selling any assets that are in a capital loss position. For example, listed shares that are currently sitting at a price below what you paid for them can be sold quickly and easily before the financial year. The losses will reduce the CGT, as they can be offset against the capital gains you have previously made.
However, be careful of a practice known as “wash sales” as these are not looked at favourably by the ATO. If you have any concerns, please contact us to discuss.
If you have deductible expenses you are intending to purchase, it makes sense to do so before 30 June. Items such as laptops, computers, phones, tablets, stationery or any assets used in your business are obvious examples.
If you own a rental property, you may want to bring forward expenses such as repairs and maintenance so that you will enjoy your tax deduction in this financial year. You can also bring forward expenses by prepaying 12 months interest on your investment loans. Pre-paying a year’s interest on a loan of $400,000 may involve having to fork out $20,000, however, you could get as much as $9,000 back as a tax refund. This strategy requires negotiation with your lender. You can’t just bank the equivalent of a year’s interest into the loan account — all the lender will do is take one month’s interest and credit the rest to the principal.
There are a number of other strategies that may benefit your specific set of circumstances. If you wish to discuss these further, please get in contact with us as soon as possible.
We will be in touch following the end of the year to commence your 2019 Australian Income Tax Return process.