Now that the end of financial year is just around the corner, it's time to put some real focus into your tax minimisation strategies. For many of us, living with the benefits we have in Australia does mean that we have to pay a portion of our earnings in tax, but no one wants to pay more than their fair share. Listed below are some ideas for you to implement, but just make sure you've got them covered before June 30:
1. Mortgage offset account
This is more often viewed as a strategy to cut interest costs and the length of the loan on a mortgage. The other side of the equation is a tax saving on money that would otherwise have been parked in a savings account and earning interest, on which you would be taxed at your marginal tax rate. Say you've accumulated some cash or sold some assets and you're not sure what to do with the proceeds. If you've got a home loan, putting this extra cash into an offset account can not only reduce the amount of interest payable on the loan but it will also stop you paying tax on the interest you would otherwise have earned.
2. Discretionary family trust
An effective way to hold investments, a trust is a separate investment structure where assets are controlled by one or more persons (the trustee/s) on behalf of a group of other persons (the beneficiaries).
A discretionary trust allows the trustee to decide who gets the income and capital the trust owns. These can suit someone on higher tax brackets with family members listed as beneficiaries who are on lower rates.
For example, rental income from an investment property owned by the trust could go to members of the trust on lower incomes. The trust does not pay tax, but the beneficiary does, with income and capital gains derived by a trust generally assessed at the tax rates of the beneficiary.
3. Pay and Delay if you can
Now is a perfect opportunity to pre-pay some expenses that you'll likely carry through with you into the next financial year. For example, see if you can pay for subscriptions, the cost of your income protection policy, conferences and membership fees all before June 30. Also, ask your lender if you're able to pre-pay any of your interest for the next financial year. Then if the opportunity arises, see if you can put off receiving income before the June 30 deadline. This might be achieved by holding off on issuing invoices or even reviewing your term deposit maturity dates.
4. Reduce capital gains
If you're sitting on capital losses on some of your smaller share investments and you don't have a long term plan to continue holding these, it may be a good time to sell these shares and use the losses to offset against any gains you've made earlier in the year.
5. Top up your super and salary sacrifice
Topping up your super can be one of the best deductions around, as you're still the holder of the money, minus the 15% contribution tax. This is different from claiming a deduction on paying bank interest as once that expense is paid, the bank has the money rather than you. Concessional contributions are allowed for up to $25,000 per person under 75, so make use of these limits. For a couple, that's up to $50,000 between them that can be set aside to accumulate in a lower tax environment. Don't forget that if your employer is making contributions for you, you're only able to salary sacrifice by the difference to take you up to the $25,000 limit.
6. Small business immediate asset write off, now up to $30,000
If you're a small business, this is definitely something you want to make use of although this allowance has now been extended to 1 July 2020. If you buy an asset and it costs less than $30,000, you can immediately deduct the business portion in your tax return. You are eligible to use simplified depreciation rules and claim the immediate deduction for the business portion of each asset (new or second hand) costing less than $30,000 if:
- you have a turnover less than $50 million (increased from $10 million), and
- the asset was first used or installed ready for use in the income year you are claiming it in.
7. Charitable gifts
If you're thinking of making a charitable donation it's best to do so before June 30 as you'll most likely be able to claim the full donation amount.
Remember not to leave these items to the last minute and also know that we're only an email or phone call away if you would like to seek advice on any of the above.