E, O, F and Y – four letters that spell tax

EOFYS

Perpetual Private Insights

For some people E, O, F and Y are random members of the alphabet family, the type you see jumbled together on an eye test whilst your optometrist asks: “Which is clearer?”

However as we get closer to June, E, O, F and Y coalesce to mean End of the Financial Year. That part of the year when smart individuals and families get their thinking together to make sure a bit less of their money ends up in Narellan Street, Canberra and more in their own bank accounts.

Every year tax policy changes, so, there are a few tactics you should review as you move towards June. (Obviously, each individual’s tax profile is different – so before making any move consult your Perpetual adviser).  

  1. Prepay interest by 30 June 2019

    Forget what your teacher told you years ago – sometimes it does pay to get ahead of yourself. For example, where someone has a margin loan or other investment loan (i.e. over an investment property) the interest may be tax deductible. If they have available cashflow, they can pre-pay the interest for the next financial year in advance – and that means they may be able to claim a tax deduction in this financial year.


  2. Pre-pay income protection insurance premiums

    Somewhat strangely, many Australians insure their car but not the salary that pays its lease.

    Income protection insurance replaces a person’s wage or salary income if they’re injured or ill. It’s an essential for many people – especially those with families to support or mortgages to meet.

    A further incentive to obtaining income protection cover is that the premiums are generally tax-deductible. Those premiums can be pre-paid for the next 12 months, allowing you to claim the tax-deduction in this financial year.


  3. Deferring gains

    While you may want to bring forward payments for loans and insurance, it can pay to defer some share sales as we near EOFY. For example, if an individual held shares for less than 12 months and are looking to sell, it may be worth delaying that sale until after the 12-month ownership period has elapsed.

    This allows you to claim a Capital Gains Tax general discount. That discount is available for individuals, trusts and superannuation funds.

    Remember that when you are making buy and sell decisions you need to consider risk, value and your personal financial needs (i.e. income) as well as tax – so consult your adviser if you have any doubts.    


  4. Make a tax-deductible charitable donation

    As you near EOFY you can do good as well as improve your tax position by making a tax-deductible donation to a charity.

    While a one-off donation is good for the charity someone has chose to support, setting up a charitable structure can be a better long-term solution both for them and the cause they care about.

    Setting up a Foundation or Private Ancillary Fund can provide an individual or family the ability to support a charity of their choice over the long-term. Many families find that making a long-term, cross-generational commitment to a charity is both spiritually rewarding – and good for family harmony.

    It can also offer long-term tax advantages (including in some instances the ability to spread the deduction over five years).

    You should talk to your financial adviser about how a charitable donation fits into your financial plans and tax planning. Perpetual is trustee for more than 1,000 charitable trusts and endowments and manages $2.7 billion in charitable funds (as at 30 June 2018). It works extensively with Not-For-Profit organisations and individuals to make clients’ philanthropy have more impact.

Death, taxes and stress about taxes

As this long, long, long election year reminds us (and it’s only May) the amount of tax you pay can have a major impact on your lifestyle.

If you don’t want a tax surprise in the new financial year, it pays to pay attention to some of the simpler tax management tactics discussed above. This can be more prudent – and effective - than chasing extra tax relief through exotic tax schemes (if it’s a fruit you can’t even spell, it’s unlikely the tax man really wants to give you a deduction for investing in it).

Stick to the basics and get good advice. Your tax position will improve, you’ll sleep better at night and the letters E, O, F and Y can resume their rightful place in the alphabet. 


Perpetual Private advice and services are provided by Perpetual Trustee Company Limited (PTCo) ABN 42 000 001 007, AFSL 236643. This information was prepared by PTCo. It contains general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The information is believed to be accurate at the time of compilation and is provided in good faith. This article may contain information contributed by third parties. PTCo do not warrant the accuracy or completeness of any information contributed by a third party. Any views expressed in this article are opinions of the author at the time of writing and do not constitute a recommendation to act. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. Past performance is not indicative of future performance.