With the end of financial year (EOFY) fast approaching, it is worth noting that, while your tax return may be due anywhere from the end of October through to June next year (see this article for more details), what you can and can’t claim on that return is directly impacted by what you do between now and June 30.
The key to minimising your tax bill (or maximising your refund!) is generally to delay income-producing activities and bring forward cost-producing activities. By timing these activities appropriately, you can dramatically reduce your taxable income for the current year. Here are our 5 tips (plus a bonus one for employers!) for minimising your tax:
- Check your eligibility for the Low Income Super Contribution (LISC): if your taxable income is below $37,000 for the current year, you may be eligible for LISC. The payment is calculated at 15% of your concessional super contributions (including your employer’s contributions), up to a maximum of $500. By ensuring your payments are at least $3,333.33, you will maximise this co-contribution.
- Defer asset sales until after June 30: Capital Gains Tax (CGT) is not actually a separate tax (as GST is). Your capital gains from asset sales are simply added to your taxable income for the year. By delaying an asset sale until after the end of financial year, you can delay the resulting tax obligation. You can also sell an asset before June 30 at a capital loss to offset any capital gains you have already made in the year, but keep in mind that capital losses can only offset capital gains, not your other income. These losses can also be carried forward to future years; so don’t be concerned if they exceed this year’s gains.
- Salary sacrifice into your superannuation: it might be a little late to have much impact for this year, but salary sacrificing your pre-tax income will result in that income being taxed at the superannuation income rate of 15% rather than your current income tax rate (which could be as high as 47%). Take care not to exceed the concessional contribution cap ($30,000-$35,000 depending on your age) as higher taxes and/or penalties may apply. Also, remember to include your employer’s super contributions in calculating total contributions.
- Pre-pay your interest payments: paying for the next twelve months worth of interest on an investment property loan will allow you to claim it as a tax deduction for the current year. It will also ease the repayment burden for the ensuing year, allowing you to maintain your payment levels and get ahead of your payment schedule – which will reduce your interest expense over the life of the loan (keep in mind that if you are aiming for a negatively geared investment to minimise tax, you will want to keep interest repayments higher).
- Pre-pay your insurance: as with your interest, prepaying your business insurance will allow you to claim twelve months of future expenses now. In addition, while you can’t claim your private health insurance as a deduction, thanks to the quirk that health insurance premiums are scheduled to implement price changes on April 1 annually, you will save on three months worth of insurance at the higher rate (April – June next year) by pre-paying now, as pre-payments are made at the existing level. Keep this fact in mind next year, as you can save on the full twelve months of increases by pre-paying just before April 1, 2016.
- Bonus tip for employers: your quarter 4 (April – June) Super Guarantee Contribution isn’t due until July 28; but by paying before the end of June, you will be able to claim the payments as a deduction this year.
By Jennifer Lowe