How to reduce the tax you pay

By July 31, 2014Taxation

The below newsletter includes the following articles:
1. 30 June tax planning strategies
2. Did you pay too much tax last year
3. Time poor? Pilot our new services for free
4. Our lowest rates.

30 June tax planning strategies

By Rick Henderson, Principal, ProSolution Tax Advisory

It’s hard to believe it’s almost 30 June again and the end of another tax year. We’ve enjoyed working with all our tax and advisory clients this year and we’re looking forward to continuing and building on those relationships with you all in the next financial year, and helping you achieve your financial goals.

The end of the tax year means that it’s time to start planning for your 30 June 2013 tax return(s) and the new tax year ahead. With some careful and timely tax planning you may be able to get a much better tax result from strategies such as deferral of income, prepaying expenses or taking advantage of tax minimisation tools like contributing to superannuation.

In this newsletter, I have set out some tax planning tips for businesses, investors, super funds and individuals. I’ve tried to keep this brief so this isn’t an exhaustive list of all tax planning considerations and we encourage you to contact us if you would like any further information on any of these items or other tax planning opportunities that may be available to you.

A. Property investors

Property investors can maximise the tax efficiency of their investment properties with some tax planning. Consider:

  • prepaying interest on fixed rate loans before 30 June to bring forward interest deductions (particularly if you expect income in the 2013 tax year to be more than your expected income in the 2014 tax year)
  • bringing forward other deductible expenditure (eg maintenance) to claim a deduction for the expenditure in the current year
  • making sure you are maximising all your depreciation entitlements (including capital works entitlements)
  • collating records so you can substantiate any investment property related travel expense claims
  • deferring sale of any investment properties until 1 July to defer any capital gains tax liability to the 2014 year (note a CGT event occurs on contract date, not settlement date). There’s more in relation to capital gains in Section D.

B. Individuals

  • consider pre-payment of deductible expenses before 30 June where possible. This may include pre-payment of professional memberships/subscriptions and income protection insurance premiums.
  • collate records of medical expenses in case your out of pocket expense is greater than $2,120. Please note that entitlements to medical expense rebates are now income tested.
  • if you are likely to get a tax refund, we encourage you to get your return done as soon as possible.

It is important to start collating records of all your income and deductible expenditure now and making sure your records are up to date so you are prepared for year end. Good record keeping will help you ensure that you can claim all the deductions you are entitled to or at least remember to discuss certain items with your accountant.

C. Superannuation

Businesses should ensure that contributions are received by superannuation funds before 30 June in order to claim tax deductions for contributions.

Individuals contributing to superannuation can be a good way to reduce taxable income, but remember that the concessional superannuation cap is $25,000. Now would be a good time to review your contributions to ensure that you won’t exceed the caps. Please note that contributions not received by the fund by 30 June will be included in next year’s contribution cap.

Individuals on lower incomes should consider whether they are eligible for the government co-contribution.

Superannuation funds (SMSF) should ensure they review their fund’s investment strategy. Trustees have a legal responsibility to consider whether the fund should hold insurance policies to cover one or more members of the fund. This review should be conducted at least annually and documented/minuted, so trustees should ensure this is reviewed at year end.

D. Capital gains and losses

There’s more to asset sale decisions than tax considerations, but timing of disposal of a capital asset can have a considerable tax impact.

If you need to dispose of a capital asset and will incur a taxable capital gain, consider deferring the sale until 1 July in order to defer the capital gains tax liability to the 2014 tax year. This tax advantage of this strategy could be enhanced if you are expecting to have a lower taxable income in the next tax year and you should always consider deferring sale of a capital asset until you have held it for at least 12 months to utilise the CGT discount (note: companies are not eligible for the CGT discount).

Alternatively, if you have made capital losses during the year or have capital losses from a prior year, you may consider selling an asset with a capital gain prior to 30 June to utilise the losses in the current year.

E. Business

Small business tax concessions

If you’re a small business (annual turnover is less than $2M) you may be eligible for a number of tax concessions, including:

  • prepaying expenses before 30 June for services which will be fully provided within 13 months to bring forward the deduction for the expense into the 2013 tax return.
  • purchasing assets costing less than $6,500 before year end to claim full deduction in the 2013 tax return
  • bring forward purchases of motor vehicles to claim the $5,000 immediate deduction
  • accelerated depreciation deductions

Other tax planning tips

  • write off obsolete stock before year end
  • review useful life of fixed assets – there may be benefits in scapping or trading in assets before year end
  • repay your private loans to your business before year end or review Division 7A loan agreements

Questions or comments?
Contact Rick Henderson, Principal, ProSolution Tax Advisory on (direct) 03 8624 4602 or rhenderson@prosolution.com.au.

Did you pay too much tax last year?

The Late Kerry Parker famously once told a Senate enquiry (in 1991) that everyone should be minimising their taxes because the government isn’t spending it well enough that we should be donating extra. In my opinion, that was true in 1991 and is still true today.

If you feel like you have paid too much in the past financial year, we would invite you to book a telephone meeting with Rick Henderson (his contact details are above) where we can explore opportunities to work with you and put some plans in place to help you legally minimise your taxes in the 2013/14 financial year. Tax planning should be undertaken at the beginning of each financial year, not only at the end of it.

Time poor? Be the first to pilot our new service at no cost

For most people, time is their most valuable commodity and this is very true for the vast majority of our clients. Unfortunately, as we all lead busy lives, our personal financial management suffers in that we have personal things to address or decisions that need to be made that tend to get pushed onto the back burner. Consequently, we would like to pilot a new Property Investor Concierge service. The aim of this new service is to save you time by project managing the whole property investment experience from start to end.

To pilot this service we are inviting only 2 existing clients to “road test” this new service. We will deliver the service at no cost to you in return for your candid feedback.

Essentially, the Property Investor Concierge service will include anything we can do to save you time. We’ll do the running around (related to investing in property) and provide you with regular updates saving you a lot of time and hassle. This service includes:

  • assistance in developing an investment budget (i.e. how much to borrow and invest)
  • assistance with tax planning and structuring which may include consulting with your accountant/advisor
  • liaising with real estate agents for potential purchases
  • appointment of a buyer’s agent to assist with the selection of the property
  • provide you with property sales data (RP Data)
  • arrange the finance for the acquisition
  • assistance with arranging building, contents and/or landlord insurance (if required)
  • arranging a depreciation report (if required)
  • providing you with an acquisition documentation folder so that everything is carefully documented for taxation purposes
  • assistance with appointing a solicitor and liaising with that solicitor
  • ensuring bank accounts are structured correctly
  • other matters that we can attend to on your behalf to save you time.

Whilst we might be able to share our opinion on the property(s) you are considering investing in, we are not able to make recommendations with respect to which property(s) you should buy. This will continue to be your responsibly or we can help you appoint a buyer’s agent to assist.

If you are considering investing in property but just can’t seem to find the time, you could be a perfect candidate to pilot this new service. If so, please contact us.

Credit market

Interest rates are low and lenders are offering some very competitive fixed rates. At date of writing, a selection of the lowest rates on offer are as follows:

Variable rates

$750,000 and above 4.99%

Below $750,000 5.25%

Fixed Rates

1 year 4.74%

2 years 4.79%

3 years 4.94%

4 years 5.26%

5 years 5.32%

Whilst low interest rates are good news for property investors, we encourage investors not to abandon or defer the disposal of underperforming assets purely on the basis that the interest holding costs of these assets are now relatively low. There is never a good time to hold poor quality investments. If you would like our assistance in reviewing the performance and quality of your investments and/or advising on the disposal of underperforming investments, please contact Rick Henderson at our office.