10 Things to Consider Before the End of Financial Year
As 30 June 2017 is fast approaching, we outline here some general tax planning opportunities you may want to take advantage of before the end of the financial year.
Deferral of Income
Subject to anti-avoidance rules and cash flow considerations, if your income is high this year, consider deferral to the following year. For example:
delay selling a capital asset. However, note that as a capital gain accrues on disposal, simply deferring the derivation of the sale proceeds to a later year may not be effective.
adjust deposited funds so that interest income is not paid; and/or
request that your employer delay any bonuses.
If you have had a large capital gain during the year, you may want to consider reviewing your other investments for a sale where a capital loss will arise. Capital losses can be used to offset capital gains. Similarly, where you have realised capital losses, this may be the opportunity to bring forward the sale of investments where a capital gain will arise.
Donations or gifts of $2 or more are deductible, as long as the charity is a deductible gift recipient and you get a receipt for the donation. Where spouses are on different marginal rates, consider ensuring that all deductible gifts are made by the spouse in the higher tax bracket so the benefit of the deduction is maximised.
Prepayment of Expenses
Subject to cash flow, consider prepaying expenses such as rental property interest and investment loan interest, in order to bring forward the related deductions to the current year.
Long Term Visitors
Non-residents are subject to higher tax rates in Australia. Long-term visitors to Australia should consider their resident status — in particular, the rule that a person may be classed as a resident if they have been in Australia continuously or intermittently for more than one-half of the year of income.
A taxpayer who is considering retiring near year end may find it worthwhile to defer discretionary income until after 30 June. In that subsequent year, their income will normally be smaller and the marginal rate may therefore be less.
The same applies if you are expecting to be on maternity leave. Consider ways you can defer income and capital gains into the year you are on leave when income will usually be less and your effective tax rates lower.
For taxpayers on higher incomes, consider the use of negatively-geared investments to generate excess deductions that can be offset against income.
Tax Agent Fees
These fees are not deductible until they have been incurred, irrespective of the year of the tax return to which they may relate. Pay your tax agent by 30 June. Depending on your individual circumstances, it may be sensible to make a prepayment as well.
While you can access a deferred lodgement date when lodging through a tax agent, you should really opt to lodge as early as possible after 30 June if you are expecting a refund. It is your money back in your pocket after all.
Of course, as is always the case for tax planning opportunities, there is no one size fits all solution. Other considerations must always be taken into account — for example, personal factors, commercial considerations, common sense, the general economic climate and the potential impact of other taxes. Look out for further tax planning considerations from us over the coming weeks and do get in touch if you have any questions relating to your tax.