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The key objective for tax purposes is to minimise your assessable income. Assessable income is your gross income: that is, a combination of your salary plus additional income from sources such as interest from cash accounts, rental property income, dividends from shares, managed fund distributions, and capital gains. Subtract all allowable tax deductions from your gross income and you have your taxable income. This is the figure that is used used to calculate the amount of tax you will have to pay. The lower your income, the less tax you will pay.
You can check your personal tax rates by going to
www.ato.gov.au. Alternatively, you can contact the
Locumsgroup accounting division and we can do the
calculations for you.
As we approach June 30, if you have sold an asset and made a Capital Gain, and you have another investment that has an unrealised a Capital Loss, consider selling that loss-making investment, realizing the Capital Loss and using the loss to to offset your gain. As an example, if you have a property which you sold and have made a profit, and you also own some shares that have been smashed by the market. Consider selling the shares to crystallise the loss. You can then use that loss from the shares to offset the gain from the property. You can then buy the shares back later if you really want to continue to own them. In this process it is critical that the Capital Loss is realised in the year of the Capital Gain or in the years prior to the gain. If you realise the loss in the year following the gain it can’t be offset against the prior year’s Capital Gain. Contact your Locumsgroup financial adviser or accountant and we can complete these calculations for you before the end of the financial year.
This is an effective way for couples to minimise the total amount of tax they pay. The concept is very simple; if you have a spouse or partner who either doesn’t work or who earns a low income, you can minimise your combined total tax bill by holding some of your investments in the name of the person who earns the least. You can’t split income from wages or salaries with your spouse, but you can hold investments in their name. This means any income from these investments goes into your spouse’s income tax return and is taxed at their lower Marginal Tax Rate – or not at all if they earn below the income threshold..
One way to minimise assessable income and reduce your tax bill is by making Salary Sacrifice contributions to your superannuation. Salary Sacrifice is an arrangement with your employer where you make additional super contributions from your pre-tax salary, rather than receiving your salary as take-home pay. The money that goes into super is taxed at the low rate of 15 per cent, which for many people will be lower than their Marginal Tax Rate that they would pay on this income if they received it after paying tax. Salary sacrifice contributions are Concessional Contributions, and are currently limited to a total of $50,000 a year if you are over 50 before Penalty Tax applies. If you are under age 50, the limit is currently capped at $25,000 a year. These superannuation contribution caps are indexed. If you’re nearing the Concessional Contributions Limit it’s possible to also make Non-Concessional Contributions from your after-tax income. These contributions are not tax deductible. An annual cap also applies for Non-Concessional Contributions before Penalty Tax applies. In the 2010/11 financial year, the Non-Concessional Contributions cap is $150,000. If you are under 65 years of age as at 1 July 2011, you can bring forward two years worth of Non-Concessional Contributions, giving you a total Non-Concessional Contributions cap of $450,000 for the three years, rather than a $150,000 cap per annum in each year of the three years. This is a very useful strategy for getting money into your superannuation fund, however it requires some careful planning if you want to maximise the benefits and avoid the penalties that apply if you over-contribute. Investment earnings of your super fund are also taxed at a maximum rate of 15 per cent instead of at your individual Marginal Tax Rate. This is what makes super an attractive investment vehicle for many people. Remember, if you are employed and you are going to salary sacrifice you may need to make that decision in time to give a month’s notice to your employer. So act early! Contact your Locumsgroup financial adviser or accountant and we can complete these calculations for you before the end of the financial year.
Generally, allowable deductions are any expenses that you incur in the course of earning your income. Expenses might include membership of professional organisations, mobile-phone charges, accounting services and vehicle expenses. Making motor vehicle expense claims often involves keeping a log book that demonstrates the work-related vehicle use. A log book enables your accountant calculate whether you are eligible for deductions related to vehicle maintenance, running costs and fuel costs. If you don’t have a log book, get one. Make sure you keep all relevant bills and statements relating to your vehicle as the bills are incurred. Set up a simple filing system.
If you own an investment property you can claim expenses including advertising, body corporate fees, property agent’s fees, some repairs, gardening, insurance, interest on loans and land tax. You may also be able to depreciate assets such as fixtures and fittings in the property. However, be careful and seek the advice from our accounting division if you are uncertain. Make sure you get minor maintenance tasks out of the way before the end of the financial year so you can claim these costs against your income. It might also be possible to prepay some future expenses associated with an investment property and claim an immediate deduction this financial year. For example, if you have borrowed to invest in a rental investment property, it might be possible to pre-pay the loan interest for the 2011/12 tax year before 30 June 2011. Usually your lender will calculate the amount and it will involve you making a lump sum payment. This amount can then be claimed as a deduction against your 2010/11 tax bill. Before embarking on this strategy, check with our accounting division whether it’s the right course of action, also being aware that some lenders may not allow interest pre-payments. Speak to our mortgage division to get advice on your loan pre-30 June 2011.
If you are thinking about selling a capital asset before the end of the financial year, consider timing the sale to manage any Capital Gains Tax ('CGT') you may have to pay. CGT is tax assessed on the Capital Gain in value of assets you sell. You may benefit by deferring an asset sale until after 30 June, particularly if you expect to be on a lower income next financial year. This may apply to people considering retirement or taking extended leave, whose income will be considerably reduced in the next year. You may be able to include certain holding costs of the asset to reduce the total gain. Also, if you have held the asset for more than 12 months, you will generally be entitled to discount the gross capital gain by 50 per cent and only pay tax on half of the Capital Gain.
The net taxable gain will be taxed at your Marginal Tax
Rate.
Contact your Locumsgroup financial adviser before you
sell down an asset with a Capital Gain and we can
complete these calculations for you before the end of
the financial year. Simple strategies like these make it possible to minimise your tax bill and manage your affairs effectively.So talk to us about the ways we can help you manage your tax affairs on 1800 24 86 86.
Paul
Ahearne MBA., Grad.Dip.Man., Dip.FP., FAICD
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