How to get more back at tax time

Most of us leave the 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, the good news is there are many tax-effective strategies that you and your financial adviser can implement now to ensure that tax time runs as smoothly as possible.

Here are some clever tips and ideas to consider.

Claim your uniform
If you are a tradesperson or if you have to wear a uniform for work these clothes or laundry expenses for them may be tax deductible.

Capital gains tax management 
If you have a capital gains tax (CGT) liability this year, there are a few strategies that you could consider to reduce the impact. These can be complicated to undertake, so it is recommended that you speak to your financial adviser for more information.

Consider different types of investment structures 
Investing into different types of investment structures (such as insurance bonds or superannuation) can prove to be a tax-intelligent investment. The investment income within an insurance bond is taxed at a maximum rate of 30 per cent which provides a saving of 19.0 per cent for a high income earner (calculation: 49.0 per cent [including Medicare levy of 2.0% and the Temporary Budget Repair levy of 2.0%] – 30 per cent) and tax-free withdrawals after ten years.
Insurance bonds offer a range of different opportunities from investing for children, wealth accumulation for high income earners to passing your wealth onto the next generation outside of your estate.

Salary packaging
Salary packaging is also known as a salary sacrifice arrangement. It is where an employee agrees to forgo part of their salary or wages in return for the employer providing them with benefits of a similar value. For certain industries (such as medical profession, charities) or high income earners it can be an effective way to obtain tax savings, particularly if you are on the top marginal tax rate.

Some of the most common items that can be salary packaged include: 

  • superannuation 
  • motor vehicles 
  • expenses ‘otherwise deductible’ to the employee

You should make sure any salary packaging agreement you get into has a positive outcome in after-tax terms. Employers are not required to offer salary packaging to employees and it is wise to ask your employer what benefits you can salary package and speak to your financial adviser or accountant about opportunities.

Salary sacrifice into superannuation
Superannuation can be a tax-effective investment. If you’re an employee, you could look at contributing to superannuation through salary sacrifice, thereby reducing your taxable income. In the long term, salary sacrificing has many benefits as it not only helps to increase your superannuation savings but could also reduce the amount of tax you pay. You could even salary sacrifice your annual bonus into superannuation, but this needs to be arranged in advance with your employer.

If you decide to salary sacrifice into superannuation, this amount is taken from your pre-tax salary. Your employer will automatically deduct it from your salary and deposit it directly into your superannuation fund. As a result, your contribution will be taxed at a maximum rate of 15 per cent (up to 30 per cent for individuals with income over $300,000), as opposed to your marginal rate, which may be as high as 49.0 per cent. Additionally, the reduced salary amount that you actually take home would then become your assessable income for tax purposes. This may enable you to move down a tax bracket, reducing your amount of total tax payable. Concessional contributions, or those made with pre-tax money, are currently limited to $30,000 per person per year. If you were 49 or over on 30 June 2014, this cap increases to $35,000. You should consider speaking to your financial adviser about how this may impact your retirement planning strategy.

Have you turned 65 during this financial year?
If you have turned 65 this financial year, it is your last opportunity for you to contribute up to $540,000 before 30 June 2015 by using the three year bring forward non-concessional contribution cap. Making personal after-tax contributions into super can provide your superannuation a boost. This is complex and you will need to talk to your financial adviser about the contribution rules.

Claim your medical expenses
From 1 July 2013, those taxpayers who received the offset in their 2013/14 income tax assessment will continue to be eligible for the offset for the 2014/15 income year if they have eligible out-of-pocket medical expenses above the relevant claim threshold. The changes mentioned above will not apply to all taxpayers – the offset will continue to be available for taxpayers with out-of-pocket medical expenses relating to disability aids, attendant care or aged care expenses until 1 July 2019. Your Medicare financial tax statement will help you claim the offset in your tax return. The statement shows you how much you have paid for medical expenses and how much you have claimed back from Medicare.

Transition to retirement
One of the common tax-effective retirement planning strategies for those aged 55 or over is to transition to retirement (TTR). A TTR strategy offers opportunities for wealth accumulation and tax efficiency, especially for those aged over 60 or over, who can access a tax-free income stream. There are two components to the TTR strategy: You can commence a non-commutable account-based pension and receive between four and ten per cent of the account balance as an income stream. You can make contributions into superannuation so that, including the pension, the overall after tax living expenses remain unchanged. TTR strategies are complex in nature and it is best discussed with a financial adviser to determine whether or not it is appropriate for you.
For more information on how to transition in to retirement click here. 

Exotic schemes
Be sure to seek independent professional advice before you invest in any of the more creative and exotic tax/investment schemes that emerge around this time each year. If it seems too good to be true, it probably is!

Special offer: Bridges has been providing professional financial planning services to clients since 1985. The initial consultation is complimentary, and obligation-free for our readers. Claim your complimentary financial planning appointment today.

For your free downloadable tax return check list from Bridges click here.

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