Last-minute individual tax planning tactics

The current financial year is almost at an end, but there are still many strategies you may be able to put into play to ensure you pay not one cent more tax than is necessary for the 2012-13 year.

Of course, the best tax tactics are adopted in July, not June (that is, as early as possible in any financial year, not right near the end of it), however it is also wise to remember that proper tax planning is more than just finding bigger and better deductions — the best tips are those that set your tax affairs in better order for future income years.

Not all of the following tips will suit your circumstances, but as a list of possibilities they may get you thinking along the right track. Of course check with this office if you need further information.

Investment property

Many expenses stemming from owning a rental property are claimable, so it can be helpful to bring forward any expenses before June 30 and claim them in the present financial year. If you know that an investment property needs some repairs or requires attention regarding pest control, see if you can have these (deductible) payments fall into the 2012-13 year.

Pre-pay investment loan interest

In a similar vein, see if you can negotiate with the finance provider you use to fund your investment property or margin loan on shares (or other loan types) to pay interest on borrowings upfront, thereby giving you a deduction this year. Most taxpayers can claim a deduction for up to 12 months ahead. But make sure you review how you and your lender have allocated funds secured against your investment correctly, as a tax deduction is generally only allowed against the finance costs incurred for the purpose of earning assessable income from investments.

A deduction may not be available on funds you redraw from this loan put to other purposes. Also, a component of the National Rental Affordability Scheme payment is not assessable income and therefore the deduction on these properties may need to be apportioned. Ask this office if you want to know more.

Bring forward expenses, defer income

Try to bring forward any other deductions (like the interest payments mentioned above) into the 2012-13 year. If you know that next fiscal year you will be earning less (maternity leave, going part-time etc) deductible expenses that can be brought forward into the present financial year will provide more financial benefit.

An exception will arise if you expect to earn more next financial year. In that case it may be to your advantage to delay any tax-deductible payments until next financial year, when the financial benefit of deductions could be greater. Your personal circumstances will dictate whether these measures are appropriate.

It’s probably leaving it a bit late to adopt this strategy now, but a tactic that can take advantage of this sort of timing play is to place money into a term deposit that matures after June 30, where interest will accrue to you in the next tax year (perhaps one to keep in mind for later years, should circumstances and tax regimes suit).

Use the CGT rules to your advantage

If you have made and crystallised any capital gain from your investments this financial year (which will be added to your assessable income), think about selling any investments on which you have made a loss before June 30. Doing so means the gains you made on your successful investments can be offset against the losses from the less successful ones, reducing your overall taxable income.

Keep in mind that for CGT purposes a capital gain generally occurs on the date you sign a contract, not when you settle on a property purchased. When you are making a large capital gain toward the end of an income year, knowing which financial year the gain will be attributed to is a great tax planning advantage.

Of course, tread carefully and don’t let mere tax drive your investment decisions – check with this office to determine whether this strategy will suit your circumstances.

Need the teeth fixed or new glasses?

If you can get a quick appointment, why not have a (possibly expensive) medical procedure completed before June 30 and have more to put towards qualifying for the Medical Expenses Offset? The offset is means tested, but if you qualify many medical expenses are included, as well as some nursing home or hostel costs (but sorry, no nips or tucks).

In the latest federal budget the government has proposed that this measure will be phased out, possibly from as early as July 2014, depending upon circumstances. Bear this in mind if you are considering medical and dental procedures.

Final reminders

You can claim up to $300 of work-related expenses without receipts, provided the claims are for outgoings related to earning assessable income (see related article on page 4).

Nobody knows your affairs better than yourself, so you will recognise if any of the above tax tips applies to your circumstances. But nobody is better informed as to what is appropriate, or indeed allowable, than your tax agent (and don’t forget, any tax agent fee is an allowable deduction in the year it is paid).

Every individual taxpayer is required to lodge their return before October 31, but tax professionals are generally given more time to lodge, which can be a handy extension to a payment deadline. Of course, if you’re sure you will get a refund, it’s no use delaying. In these cases, it is worth getting all your information to this office as soon as you can after July 1.