Tax time made easy

You aren’t alone if you usually leave your preparation for the end of the financial year until it is too late. The good news is there are many tax-effective strategies that you and your financial adviser can still implement to ensure you save both time and money. 

Here are some clever ideas to consider.

Contribution limits
For the 2015/16 financial year, non-concessional (or after tax) super contributions are capped at $180,000 per person per year or $540,000 ($1,080,000 for a couple) over three years using the bring forward provisions.

Concessional contributions, or those made with pre-tax money, are currently limited to $30,000 per person per year. If you are 49 or over on 30 June 2015, this cap increases to $35,000.

The Government announced in the May 2016 Federal Budget that they plan to change the contribution rules. Please contact us before making any non-concessional contributions as the current legislation may change.

Prepaying interest
If you have an investment loan you can arrange to prepay the interest on that loan and claim a tax deduction in the same year the interest has been prepaid.

Negative gearing
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 invest in shares, you may obtain imputation credits which can be used to further reduce the amount of tax you pay.

Salary sacrifice
A salary sacrifice strategy allows you to make contributions to super from your pre-tax salary. Your salary is then reduced by the amount you choose to sacrifice and the benefits of this are two-fold: not only does your super balance increase, but this strategy could also reduce your taxable income and therefore the amount of tax you pay.

Not only that, but super contributions are concessionally taxed at just 15 per cent (up to 30 per cent for individuals with income over $300,000) instead of your marginal tax rate, which could be as high as 49 per cent – so you’ve got more to invest in super.

Super co-contributions
If you earn less than $35,454 (including reportable fringe benefits) and make an after tax contribution to super of $1,000, you will be eligible for the maximum super co-contribution of $500 from the Government. The co-contribution amount reduces by 3.33 cents for every dollar of income over $35,454 and phases out completely once you earn $50,454. 

The ATO uses information on your income tax return and contribution information from your super fund to determine your eligibility.

Super splitting
If you want to split your super contributions with your spouse, don’t forget this can only be done in the year after the contributions were made. Therefore, from 1 July 2016, you are able to split up to 85 per cent of any concessional (or pre-tax) contributions you made during the 2015/16 financial year with your spouse.

Apart from making the most of your super, there are other ways you can minimise your tax liability.

Capital gains and losses
A capital gain arising from the sale of an investment property or shares may be offset by capital losses. For example, you may have had to sell investments that were no longer appropriate for your circumstances and any capital losses realised as a result can be offset against any capital gains you have realised throughout the year. Specialist advice should be sought before dealing with your investments.

Unused losses can be carried forward to offset gains in future years.

Income protection insurance
If you hold an income protection policy in your name, then any premium payments you make are tax deductible. So, be sure to review your insurance.

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