When it comes to tax planning, there are generally two rules of thumb.
Some individuals, who meticulously plan out their tax affairs throughout every financial year, get to the end of June each year knowing full well they have ticked all the tax boxes they can so they can gain the maximum benefits available to them from the Tax Office.
Then there are those who essentially glide through each financial year with little thought and, after eventually lodging their tax return for the previous tax year, come to the realisation they have missed out on opportunities to reduce their tax bill. By then, of course, the tax horse has bolted. There’s never an opportunity to wind back the clock.
Taxpayers who have followed the latter course have a limited time to firstly understand all the entitlements available to them, and secondly to take action before it’s too late.
It comes down to education and, of course, education. Below are 10 essential tax tips to prepare well ahead of June 30 every financial year.
1. Hunt down all claimable expense records for the current financial year, related to either personal deductions from pay as you go income, self-employed income, and investment income. Be organised throughout the year by filing receipts in a compendium;
2. Gather all bank account and credit or loan statements for the financial year;
3. Familiarise yourself with all the allowable deductions from the ATO related to your particular field of work, and ensure you have receipts to back up any expense claims. The same is the case for business owners, although you are likely to have more deductible claims;
4. Those wanting to reduce their assessable income by purchasing claimable items before June 30 should ensure that full payment is made this financial year. Items bought on credit and paid for in the next financial year will not be claimable for the current year;
5. If possible, prepay interest on borrowings before June 30 so it can be claimed in this financial year;
6. Investors including self-managed super fund trustees should be aware of all the allowable deductions that can be made on the assets they hold, and have detailed records to back up any expense claims. The ATO website provides detailed information on allowable deductions for investment purchases, such as the interest costs on funds borrowed to purchase assets;
7. SMSF trustees and other individuals have an opportunity to contribute concessionally taxed superannuation this financial year. But make sure the money is cleared into your account before July 1;
8. Full and separate records should be kept for every asset, including the date of purchases and related expenses such as share transaction costs, borrowing costs, cash expenses paid, and income received including dividends;
9. Crystallising investment losses before June 30 to offset capital gains can be a prudent strategy. If assets need to be realised to achieve this aim, make sure the sale transaction is settled before June 30. But don’t sell assets such as shares to crystallise a loss this financial year, and then buy back the same assets soon after. The ATO takes a dim view of investors who sell assets purely to book a capital loss, only to repurchase the same shares either concurrently or shortly after the initial sale. This form of “wash sale” is considered tax avoidance, and can attract harsh penalties.
10. Lastly, don’t wait until after June 30 to see your accountant or financial adviser. It makes sense to set up an appointment early in June to ensure you’re on the right track with your tax planning so you have ample time to take action before the end of the month.