Stop Horsing around – Tax Time Tips

Written and accurate as at: 6 May 2014

As it has been said, there are two certainties in life – Death and Taxes. Death can be a little out of our control, however taxes can be something that we can proactively make a difference with. Australia is now one of the highest taxed countries in the world.

Here are some strategies that can legitimately minimise tax. Keep in mind, everybody’s financial situation is different and we strongly recommend you to seek professional advice on your particular circumstances.

1. Salary Sacrifice some before tax income. The contributions tax rate on superannuation contributions that are made before tax (out of your gross salary) is 15% so if your marginal tax rate is 31.5%, for example, and you contribute $1,000 of gross income before tax, you will save tax of 16.5% of 1,000 – being $165. Keep in mind your superannuation may not be accessible for a long time and there are limits to the amount that you can contribute.

2. Contribute after tax monies to superannuation. If you earn under $46,920pa, you may be eligible for a Government Co-Contribution. When you are eligible for the maximum co-contribution, this can mean the Government will contribute an extra $500 in your superannuation account.

3. Tax-deductible contributions to super. For those substantially self-employed or unsupported (who don’t receive employer SG contributions), then you may be eligible to make concessional contributions to superannuation and receive a tax deduction. For deductible contributions to be counted for this financial year they must be received by the trustees of your superannuation fund by 30 June.

4. Contribute super for your spouse. You may be eligible for a rebate on your tax when you make a superannuation spouse contribution. Your spouse needs to earn less than $13,800 in the current financial year. The maximum rebate is $540. You could also consider splitting contributions with your spouse to help even up your superannuation balances if this is an option offered by your superannuation fund. To do this you will need to make a request to the member’s account notifying them of your intention to split your contributions with your spouse.

5. Delay Income. If you are able to you could defer income until after 30 June to avoid paying tax on this income this financial year. This can be achieved by reviewing term deposit maturity dates or if you run a business you could hold off issuing invoices until 1 July.

6. Prepay interest on investment borrowings. You have the ability to prepay deductible expenses for up to 12 months in advance. If you prepay investment borrowings you will receive the tax deduction in this financial year.

7. Prepay any tax-deductible expenses. As with prepaying interest on borrowings, if you prepay deductible expense for up to 12 months in advance, you may get the tax deduction this financial year.

8. Buy Private Health Insurance. If you are a high-income earner, to avoid the Medicare Levy surcharge, you could take out private health cover. You need to hold insurance for a full year, otherwise the surcharge will be pro-rated.

9. Minimise capital gains tax. Have you sold an investment and made a capital gain? Do you have the ability to sell some assets that are currently reflecting a loss? Capital losses can offset capital gains if realised in the same tax year. Assets that have been owned for over 12 months before being sold are eligible for a 50% reduction in the assessable capital gain, so in some cases it might be beneficial to hold onto that investment for a little longer. This tax minimisation strategy is complex and the benefit is dependent on many factors. We encourage you seek personalised advice.

10. Transition to Retirement Pension Strategy. This involves taking a pension from your current superannuation account and increasing your salary sacrifice superannuation contributions. This might result in a beneficial tax outcome for you. You need to be over age 55 to be able to access up to 10% of the account balance each year as an income stream.

11. Have you spent big on medical this year? If you claimed the out of pocket medical expenses last year and received the offset in your 2012–13 income tax assessment, you will be eligible for the offset for the 2013–14 income year if you have eligible out-of-pocket medical expenses above the relevant claim threshold of $2,000.

12. Give away some cash. You will get a tax deduction for donations to entities entitled to receive tax deductible donations, officially called Deductible Gift Recipients. Many charities and not-for-profit organisations hold this tax status, but always ask before gifting.

13. Claim Income Protection insurance premiums. Income Protection insurance (also called Salary Continuance) covers you for a level of income in the instance of accident or illness. While the premiums you pay are tax deductible, the benefit paid on accident or illness is taxable.

14. Do you have other work-related expenses? For example, did you do any travel for work at your own expense? Many work-related expenses are deductible so make sure you discuss these with your Accountant before lodging your return.

15. Start to plan for next year. Do you have the opportunity to salary package a car? Or how about contributing a regular amount to superannuation? The end of financial year is not just a time to discuss minimising your tax, but is also an opportunity to discuss and plan your financial future.

16. Make sure your SMSF affairs are in order. If you run a SMSF, then you should ensure that you complete all necessary documentation as per your responsibility as trustees including the payment of minimum pension amounts. These pension payments must be paid to members by 30 June.

Good record keeping is the key to making tax-time easier to manage. If you struggle with keeping track of your records, then you could try scanning receipts and storing them electronically, trying a banking and budgeting app or having a separate bank account to keep track of expenditure. You can also read more end of financial year planning tips here.

As mentioned above, get advice, and in particular, be careful not to get too carried away with gearing up for a deduction, many have been burnt before doing so. Read this article on An aggressive double gearing strategy.

Managing taxation takes a bit of thought, but can add up to a lot of money, so take the time to review your affairs and arrangements to make sure you’re making the most of the money you’re earning. If you want to explore the tax ramifications with regards to Estate Planning see the Estate Planning learning module.