Ask our experts - planning ahead for tax time
As the end of the financial year approaches, many of our clients ask how they can minimise their tax liability. Our Strategic Advice Specialist, Chris Balalovski, answers your questions.
It is important to note that the strategies mentioned below may not be suitable for all investors and we recommend you speak to your adviser about your own situation.
Superannuation and pensions
Can I claim a tax deduction for super contributions?
If your employment income is less than 10% of your total assessable income (for example, if you’re a business owner, self-employed or not working at all), then you may be able to claim a personal deduction for your own super contributions. If you are currently under age 50, you can claim a deduction of this type of up to $25,000 per financial year, and if you’re aged 50 or over, up to $50,000 until 2012.
I’m over 55 and still working. How can I minimise tax?
If you are aged over 55, and in particular over age 60, a transition to retirement (TTR) strategy may provide you with significant tax benefits. This is because this strategy allows people between the ages of 55 and 64 to access part of their super through a pension while they are still working. The pension provides a regular income stream and can supplement any earned income.
The key tax benefit is that from ages 55 to 59, the pension income will receive a 15% tax offset, and from ages 60 to 64, the income is 100% tax-free. Combined with a salary sacrifice strategy, you could potentially save a considerable amount of tax and boost your retirement savings – all while maintaining your income level.
I’m receiving a pension from my super – will it incur any tax?
If you are receiving a pension or income stream from your super, as above, your pension income is concessionally taxed or tax-free depending on your age. However, you should ensure that you draw at least the minimum pension amount required by 30 June 2010. The minimum required total payment will depend on your age. If you haven’t drawn the minimum amount, your pension account will incur additional tax.
Tax rates and capital gains
Will my tax rate change this year?
There is a small shift in the marginal tax rates from 1 July 2010 which provides an incentive for some individuals to defer assessable income until after 30 June 2010 so that they are taxed at a lower rate. On the other hand, deductible expenses should be brought forward before 30 June 2010, so that they are tax deductible at the existing higher rate.
I’m expecting a capital gain – what should I consider?
As with ordinary income, you can defer any capital gains tax (CGT) payable on assets sold for a profit until after 30 June 2010 to take advantage of the lower marginal tax rates. However, you should ensure that any expected capital losses are incurred prior to 30 June, so that they can be offset against any capital gains generated during the financial year.
Also, if you have held assets for less than 12 months and are planning to sell, you should consider delaying the sale until the 12 month ownership period has elapsed. This way you can take advantage of the CGT discount concessions (applicable for individuals, trusts and superannuation funds).
What about making a tax-deductible charitable donation?
By making a tax-deductible donation to a charity or non-profit organisation, you may be able to offset a capital gain made during the year. Compared to a one-off donation, setting up a charitable trust can be a better solution for individuals, families or businesses and generally offers long-term tax advantages. A charitable trust also provides a sustainable gift that grows over time to keep giving in perpetuity, allowing you to leave a lasting legacy for the community. See more on our website.
Can I claim income protection insurance premiums?
Income protection insurance cover can provide up to 75% of your salary if you are unable to work due to illness or injury. This type of insurance is considered essential for an individual who relies on employment income to meet their, or their family’s, lifestyle needs. These premiums are tax-deductible and can also be pre-paid for the next 12 months, allowing you to benefit from the deduction this financial year.
Depending on your situation, you may benefit from holding insurance within your super account.
Can I pre-pay expenses?
Small business taxpayers (who have a turnover less than $2 million) may be entitled to an immediate tax deduction for pre-payment of expenses, if the period covered is 12 months or less. For example, you may be able to reduce your current taxable income by pre-paying up to 12 months of tax-deductible interest by 30 June 2010. This deduction is also available to individual investors prepaying interest on an investment loan.
Can I claim a deduction for a bad debt?
To claim a deduction for bad debts, the debt must be physically written-off in your books of account by 30 June, rather than at a later time (for example, when the accounts are finalised). Note that to be a bad debt, you must have brought the amount previously owed to account as assessable income and given up all attempts.
Would you like to know more?
There are a number of tax-effective financial planning strategies that you may be able to put in place before 30 June to enhance your tax and wealth position, however early planning is essential. Speak to your Private Client Adviser for advice on your personal situation or phone 1800 631 381.