Prepare now for the end of financial year (part 1)
A lot of people leave their preparation for the end of the financial year until it is too late. If you feel that your finances could do with a shake-up before June 30, there are many tax-effective strategies that you and your financial planner can implement now to ensure that the end of June runs as smoothly as possible. This update focusses on maximising tax deductibility, and is the first of a three part series aimed to provide you with an insight into what strategies you may wish to consider in the lead up to 30 June.
A tax deductible way to manage risk
Income protection insurance is an essential part of any financial plan, designed to secure your family’s lifestyle in the event of illness or injury. Income protection insurance premiums are generally tax deductible, so if you purchase income protection insurance and pay your annual premium before 30 June 2015, you may be able to include the deduction in this year’s tax return. Business owners may also be able to claim deductions on their business insurance premiums.
Splitting income with your spouse
Investing in your spouse’s name can reduce, or even eliminate, the amount of tax paid on the investment income. This is true if your partner has a lower marginal rate of tax or is earning less than $20,542 pa.1 Splitting income with your partner can be as simple as having your cash reserves (excluding your everyday bank account) in the name of the partner with the lower marginal tax rate.
1 Based on 2014/15 tax scales and low income tax offset of $445 taken into account.
Private health insurance
The Government made significant changes to the Medicare levy surcharge and the private health rebate from 1 July 2012. If you are currently paying the Medicare levy surcharge and want to beat the tax man, you should consider taking out private health insurance before 30 June to avoid paying the surcharge again. Even though you might have private health insurance, you may find, based on your circumstances and income, your private health rebate has reduced this financial year ending 30 June 2015. To ensure that you understand the full impact, contact your health fund for more details.
Keep your receipts
The most common reason why people don’t take advantage of tax deductions is simply because they don’t keep receipts. While keeping receipts for big ticket items is necessary, you don’t always need a receipt for the smaller items such as stationery and books. If the total amount you are claiming for work related expenses is $300 or less, you need to be able to show how you worked out your claims, but you do not need written evidence.
Claim your uniform
If you are a tradesperson or if you have to wear a uniform for work you might find the clothes or the laundry expenses may be tax deductible.
Pre-paying your investment expenses
Gearing (borrowing to invest) can be an effective way to achieve long-term lifestyle and financial goals. As an added bonus, the interest that you pay on your investment loan is tax deductible. If you have commenced a gearing strategy, or are about to set one up, pre-paying your interest bill for up to 12 months before 30 June 2015 may enable you to bring forward your tax deduction and pay less tax this financial year.
Negative gearing is another strategy used to manage tax liabilities. Geared investments use borrowed funds, therefore enabling a higher level of investment than would otherwise be possible. Negative gearing refers to the cost of borrowing exceeding the income generated by the investment. This difference is an allowable tax deduction. If you borrow to invest in shares you may obtain imputation credits which can be used to further reduce the amount of tax you pay.
Consider making a tax-deductible donation
It is often said that we will be remembered not for what we possess but for what we give, so why not get in contact with a charitable organisation that is close to your heart to find out if they will accept a tax-deductible donation this financial year. You may be surprised to discover that even the smallest donation can make a big difference in the lives of those less fortunate.