Tax planning tips for salary or wage earners and investors
While there are plenty of possibilities for businesses to minimise tax, what can everyone else do to save tax?
We recommend that you meet one on one with your MP+ accountant and discuss the opportunities available to your specific circumstances. By legally minimising your tax, the money saved could assist in reducing your home loan, adding to your super balance, going on a holiday or even provide a deposit for an investment property.
To give you an idea, we’ve listed several ways to legally reduce your tax depending on your circumstances.
Defer your income if it is over $180,000
The 2% budget repair levy for high-income earners (introduced in 2014/15 federal budget) will expire on 30 June 2017. If you’re earning over $180,000, you can save this 2% if you can defer any income above this amount until after the end of this current financial year.
Claim depreciation on investment properties
You can claim a deduction for depreciation and capital works relating to your investment property. A property depreciation report prepared by a qualified quantity surveyor will make sure you maximise those deductions and fulfil your record keeping obligations. You will only need to get this report once (per property) as it will provide the expected deductions relating to the property for up to 40 years. Note, the cost to produce the report is also tax deductible.
Read more about how an investment property may give you tax back here.
Timing of Capital Gains Income
It may be beneficial to defer a capital gain on the sale of an investment to a later income year for a number of reasons – lower income and perhaps a lower marginal tax bracket in future years; expected capital losses from the sale of another investment/s; or establishing an ownership period of at least 12 months to be eligible to claim the general 50% capital gains tax (CGT) discount. Alternatively, it may be useful to bring forward a sale to the current year if there are capital losses available to reduce a gain.
A reminder that for CGT purposes, the timing of the gain is generally the date of the sale contract, not the settlement date or the day you receive the money.
These issues can be complicated, so please make sure you discuss them with your MP+ accountant before committing to any sale of investments.
Use your Family Trust to reduce taxable income
Are your investments owned by your family trust? A family or discretionary trust generally allows you to distribute trust income to your children and grandchildren up to $416 each per year, tax-free. This means that if you have four children, there is income of $1,664 your family group doesn’t pay tax on.
Prepay certain expenditure
Some expenditure relating to your investment activities and income may be prepaid on or before 30 June 2017. For example, if you prepay 12 months of interest on your rental property loan before year end, you can claim a tax deduction for it in the 2017 year. Some other expenses may also be prepaid – for example: investment property repairs, subscriptions or memberships.
Remember to keep in mind your individual cash flow requirements if you are considering prepaying a significant amount.
Claim deductions for insurance premiums
In general, the Tax Office allows deductions on insurance premiums if the cover is related to earning assessable income. An example of this is the premium on an income protection insurance policy. These premiums may also be prepaid for up to 12 months. Further information relating to income protection insurance may be found in this article.
Identify work-related expenses
The ATO has provided a comprehensive list of work-related tax deductions on their website. Some of these deductions include self-education expenses (your study needs to be related to your current work/role), expenses of purchasing and cleaning compulsory work uniform items, as well as tools and equipment necessary to earn your income.
Last year, the Tax Office confirmed that handbags may be claimed on tax provided that the bag is used for work purposes.
Keep records of motor vehicle expenses
You can claim a tax deduction for motor vehicle expenses if you’re using your own car for work purposes. Just make sure that you have kept a log book containing records of the car usage for a continuous period of 12 weeks before 30 June 2017. All related invoices and receipts, together with odometer readings should also be kept.
If a log book is unavailable, you can claim a deduction using the cents per kilometre method. This is where you claim 66 cents for every kilometre of work related travel up to a maximum of 5,000 kilometres per vehicle.
Maximising your superannuation
Even if retirement seems a long way off, there are some things you can do now to improve your retirement savings.
Depending on your circumstances, you may be able to arrange with your employer to ‘salary sacrifice’ some of your before tax salary into your superannuation fund where the contribution is generally taxed at a lower rate, so you pay less tax on your hard earned income and increase your retirement savings.
If you earn a modest income of less than $51,021 for each dollar of after tax income you contribute to your superannuation, the Government makes a ‘co-contribution’ on your behalf of up to a maximum of $500 – again, another way to grow those retirement funds.
These are just some of the tax deductions you may be eligible to claim. Contact us now to arrange a one on one meeting with your MP+ accountant and make the most out of tax planning before it’s too late.
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