Below is a timely reminder on tax matters to consider in the lead up to 30 June.
1. Pre-payment of deductible expenses
This strategy is only suitable to someone who is going to be in a higher tax bracket this year than they will be next year (usually due to a one-off event such as capital gains, large bonus, or alternatively are retiring or taking maternity leave and expect to have a low-income next year. Some examples to consider for prepayment –
- Prepayment of next year’s investment loan interest in June this year bringing the expense forward .
- Attending to any investment property maintenance issues or payment of expenses in advance.
Relevance ? – with today’s wide tax brackets this has much less impact than it once did. There is the old age argument, that it’s better to get the tax refund from the ATO a year earlier, but for me this strategy is really best used for when this years Marginal Tax Rate looks like being unusually higher than next years (as might be in the case of a large capital gain).
2. Review shares/managed fund portfolios and current gain/loss positions
If you are sitting on unrealised capital tax losses in your investment portfolio at the moment and are considering selling down or replacing investments, this can present a suitable tax minimisation strategy in some cases:
If you have realised capital gains elsewhere (shares and especially property), crystallising losses can reduce the impact of capital gains tax on your other capital gains. This could be particularly relevant if you are looking to change your asset allocations (for example, selling Australian shares to increase global share exposure via managed funds).
Caution – tax washing – The ATO takes a very dim view of selling shares to create a capital tax loss to then buy back the same shares. In this case the only purpose of the strategy would be to avoid tax – and thus invoke Part IV A of the tax act.
3 . Depreciation on Investment property
Make sure you have a depreciation(s) schedule for your accountant including Building Write-Down as well as fixtures and fittings (white goods, heating/cooling systems, carpets, etc). If your investment property is under 40 years old (or had a major renovations in the last 40 years), there will be deductions available. Seek advice from your accountant if you are uncertain. If you have recently purchased a property, you may need to engage the services of a Quantity Surveyor to prepare the appropriate schedules for your investment property.
4. Investment loan deductions
Mortgage broker and loan establishment fees, stamp duty charged on the mortgage, title search fees charged by the lender, valuation fees for loan approval, costs for preparing and filing documents on the loan, and lender’s mortgage insurance – are all tax deductible items. If your total borrowing expenses are more than $100, the deduction may be spread over five years or the term of the loan, whichever is less. These expenses are often overlooked when doing tax returns.
5. Income Protection Insurance Premiums – where the policy is held outside of Superannuation, premiums are tax deductible. If your policy is held within super or funded by your superannuation, it is NOT deductible in your personal tax return.
6. Check Your contribution Classifications – are correctly classified for both last year 2016/17 and contributions to date this year. If you qualified for personal concessional contributions – have you nominated with your super fund your Intention to claim a tax deduction.