Australia: End of financial year tax planning tips

Last Updated: 3 June 2012

Although the May Federal Budget could introduce some new considerations into your tax planning strategies, there remain many tactics you can consider to ensure you pay not one cent more tax than is necessary.

Remember the best tax planning should commence in July; that is, as early as possible in any financial year, not right near the end of it. Proper tax planning is more than just finding bigger and better deductions – and the best tips are those that set your tax affairs in better order for future income years.

A central fact to remember of course is that after July 1, 2012, all individual tax rates will be changing due to the introduction of the price on carbon. The tax-free threshold will rise from $6,000 to $18,200. From there the marginal rates will be 19% up to $37,000, then 32.5% to $80,000, 37% up to $180,000, and 45% after that.

Not all of the following tips will suit your circumstances, but as a list of possibilities they may get you thinking along the right track. Of course check with this office if you need further information.

Make use of your tax agent

No-one knows your affairs better than yourself, so you will recognise if any of the following tax tips applies to your circumstances. But no-one is better informed as to what is appropriate to your situation than your tax agent. Also, a tax agent's fee is an allowable deduction in the year it is paid.

Every individual taxpayer is required to lodge their return before October 31, but tax agents are given more time to lodge, which can be a handy extension to the payment deadline. Of course, if you're sure you are going to get a refund it's no use delaying, so in these cases it is worth getting all of your information to your tax agent as soon as you can after July 1.

Pre-pay investment loan interest

See if you can negotiate with the lender of your investment property or share loan to pay interest on borrowings upfront, thereby giving you a deduction this year. Most taxpayers can claim a deduction for up to 12 months ahead, and make sure your lender allocates the payment correctly, as the deduction is only allowed against the costs of financing income producing investments, such as interest charged on borrowings.

Bring forward expenses, defer income

Try to bring forward any deductions (like the interest payments mentioned above) into the 2011-12 year. If you know, for example, that next fiscal year you will be earning less (maternity leave, going part-time etc) deductible expenses that can be brought forward into the present financial year will provide more financial benefit.

An exception will arise if you expect to earn more next financial year. In that case, especially as some tax rates after the tax-free threshold are going up slightly, it may be to your advantage to delay any tax-deductible payments until next financial year, when the financial benefit of deductions could be greater.

And by legally deferring income into 2012-13, you may take advantage of the higher tax free threshold arising out of the carbon tax package (of course these tactics depend very much on your personal circumstances).

A strategy that can take advantage of this area of tax planning is to place money into a term deposit that matures after June 30, where interest will accrue to you in the 2012-13 tax year. It's probably leaving it a bit late to adopt this strategy now, but is one to keep in mind for later years, should circumstances and tax regimes suit.

Investment property

Many expenses stemming from owning a rental property are claimable, so it can be helpful to bring forward any expenses before June 30 and claim them in the present financial year.

Use the CGT rules to your advantage

If you have made and crystallised any capital gain from your investments this financial year (which will be added to your assessable income), think about selling any investments on which you have made a loss before June 30. This way the gains you made on your successful investments can be offset against the losses from the less successful ones, reducing your overall taxable income.

Of course, tread carefully and don't let mere tax drive your investment decisions – but check with your tax agent whether this strategy will suit your circumstances.

Put as much as you can into super (and the rules change after July 1)

If you are aged less than 50 you can put up to $25,000 (pre-tax) into your super fund, and those aged between 50 and 74 can generally contribute up to $50,000 pre-tax. But after July 1, 2012, the cap will be $25,000 for everyone – so make the most of it while you can. Only over-50s with balances of less than $500,000 will be able to make contributions of $50,000 a year (based on current government announcements).

But be aware of how much you are putting in, as exceeding the limits can see tax levied at punishing rates. And if you salary sacrifice into super tread carefully, as in some income years (and 2011-12 is one of them) there are 27 fortnightly pay periods instead of the usual 26.

Some relief was legislated during the year however, so that in some cases up to $10,000 in excess concessional super contributions can be withdrawn and treated as assessable income, (and so be taxed at marginal rates) rather than incurring excess contributions tax (however you are only allowed one such re-allocation).

You may also like to take advantage of the government's co-contribution policy while it lasts at its present level. Under the current rules, the government pays dollar-for-dollar (up to $1,000) from incomes of $31,920, reducing up to, and phasing out at, $61,920. After July 1, 2012 the matching rate will be reduced to 50%, with a maximum co-contribution of $500 for people with incomes up to $31,920 in 2012-13 (phasing out at $46,920).

Split super contributions with your spouse

Most concessional super contributions – salary sacrificed, compulsory, and personal contributions for which you can claim a tax deduction – can be split between members and spouses. So some super contribution amounts can be directed to a spouse's super fund.

A smart use of the strategy, if your circumstances suit, will be for a spouse whose super savings are under $500,000 to direct contributions to the spouse who may have more than $500,000. This will help the lower-balance spouse stay under the threshold for longer, and boost the family's retirement savings.

In the same vein, if both partners have funds under the threshold, contributions can be directed to the lower-balanced fund so that both stay under the threshold longer. But remember, the contribution cap applies to the member making the contributions, even where these are directed to the spouse's fund

Children still at school?

If you have school age children, you should investigate the education tax refund scheme. You may qualify for a refund of 50% of expenses, up to a maximum of $409 for primary school children and $818 for secondary students.

The refund is available for items like laptops, educational software, textbooks and, for the first time, uniforms (included from July 1, 2011). School fees are not covered. And if you've been pestered to get an iPad, these are treated like a laptop for the purposes of the education tax refund.

R&D Tax Credit

The new Research & Development Tax Credit provides a 45% refundable offset to businesses with an annual turnover under $20 million for eligible R&D expenditure, and a 40% non-refundable offset to all other eligible entities. The new rules narrow the definition of eligible R&D but allow for holding intellectual property offshore, and businesses must separate their 'core' and 'supporting' R&D activities.

Final reminders

You can claim up to $300 of work-related expenses without receipts, provided the claims are for outgoings related to earning assessable income.

A couple of tax reforms have been deferred. The 'standard' deduction ($500 for first year of operation, and $1,000 thereafter) for work related expenses has been deferred until July 1, 2013, as has the 50% tax discount for interest income.

And remember, the above tax tips are not exhaustive nor will they suit every taxpayer's circumstances. It is essential that you talk to your tax agent for more tailored advice.

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.

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