Now is the time to make any last minute adjustments to reduce your tax bill and maximise your long-term savings.
Pay expenses, delay income
Start by looking for ways to bring forward tax-deductible expenses to the current financial year and delay income until July. This is especially the case if your taxable income is likely to be higher this year than next.
You may be able to pre-pay 12 months’ interest on a margin loan, or pre-pay 12 months’ premiums on income protection insurance held outside super, and claim the full deduction in this year’s return. You might consider pre-paying membership fees for professional organisations and subscriptions for work-related publications.
Instant asset write-off
If you are a small business owner with turnover below $2 million and you have been tossing up whether to invest in new equipment, get cracking. Businesses with turnover below $2 million can claim an immediate deduction for the cost of assets up to $20,000.
And if the May 2016 federal budget is passed, from July 1 the income tax rate for small business will reduce to 27.5 per cent so it makes even more sense this year to delay income where possible.
Top up your super
Despite the uncertainty surrounding superannuation, it is still the most tax effective investment vehicle for retirement savings. So if you have any spare cash, consider making a personal contribution to super but do seek advice if you have any concerns about the best way forward in light of the changes announced in the May budget.
If the budget measures are passed, then the annual concessional (pre-tax) contribution limit will be reduced to $25,000 for everyone from 1 July 2017. Currently the limit is $30,000 or $35,000 for people aged 49 or more. For those over 49 in particular, it makes sense to take full advantage of the higher limits this year and next, while you can.
However, if you are thinking of making a non-concessional (after-tax) contribution to super, be mindful of the lifetime cap of $500,000 that came into effect on budget night. Sweeping changes are also proposed for transition to retirement pensions, but you can still enjoy the current arrangements until 1 July 2017.
Take advantage of government contributions
If you earn less than $35,454 this financial year and make an after-tax contribution to super, then you are entitled to a government co-contribution of up to $500. The co-contribution tapers out once you earn $50,454.
Review your investment portfolio
After another volatile year on financial markets, you may be sitting on some paper losses from shares or other investments. This could be a good time to sell some of your poor performers to offset against capital gains made on the sale of other investments over the past 12 months.
Where possible, it makes sense to sell investments held for at least 12 months to qualify for the 50 per cent capital gains tax discount.
Claim rental property deductions
Residential property has enjoyed another boom year in parts of the country, despite tighter lending requirements for investors and uncertainty about the future of negative gearing. Whether you are a new landlord or an old hand, make sure to claim all allowable rental property deductions.
You can claim an immediate deduction for interest on your investment loan, repair and maintenance and tenancy costs such as the preparation of a lease or eviction.
You can also claim some expenses over a number of years, such as the cost of depreciating assets, structural improvements and borrowing costs such as stamp duty and loan fees.