May
28
2009

End of year Tax Planning

Tax Planning for 2009

Ready or not, tax time is just around the corner. There is still time to change existing strategies, or introduce new ones to take advantage of available tax minimisation opportunities.

This month’s newsletter will highlight some of the key tax changes of 2008-2009, with a particular focus on the impact of the global financial crisis, as well as outline some strategies for minimising the tax you pay this financial year.

Personal tax

Changes have been made – or proposed – to tax rates, means testing, and thresholds for tax offsets and other concessions or surcharges. Most will not have an impact until next year, but can still have relevance before then. Changes this year include means testing for dependants’ tax offsets and Medicare levy surcharge threshold increases.

Benefiting from losses

During the economic downturn, it is likely that many persons or businesses will be holding assets with large inherent unrealised capital losses, particularly with shares or property.

There is an opportunity now to put unrealised capital losses in place to offset capital gains (i.e. from distributions made through trading within a managed fund). However, great care will be needed with any attempts to realise these losses prior to June 30 as an offset against any capital gains. This is because the Australian Taxation Office looks quite aggressively at such actions.

Investment properties

Traditional tips and traps for year-end actions with investment properties still apply, such as performing any needed repairs before 30 June to ensure a current year tax deduction. Negative gearing still remains a good way to claim tax deductions and reduce tax. Nevertheless, this area is always heavily scrutinised by the ATO and 2009 will be no exception, so it is important to have documentation to support claims.

Prepaying interest

Another tax minimizing strategy that is popular at this time of year is prepaying interest on investment loans, be they for shares and/or property. By prepaying interest for the next financial year by June 30, you can claim a deduction in this financial year. This will allow you to receive your tax rebate without having to wait the full 12 months.

New implications for salary sacrificing

The most noteworthy change in salary sacrificing is that the foregone salary will have to be added back and counted towards whether the taxpayer has exceeded various thresholds, e.g. the Medicare levy surcharge threshold, government co-contribution or qualifying under the 10% rule as a substantially self-employed person so as to be able to claim a deduction for personal superannuation contributions.

Superannuation contribution caps

Changes were made last income year to the way in which excessive deductible contributions are taxed. That is, contribution caps that were previously taxed at the employer level are now taxed at the employee level. This means that the contribution cap for taxpayers under age 50 is now $50,000, and the cap for taxpayers above age 50 is $100,000. Contributions above the cap are taxed at 31.5% in the hands of the member, in addition to the 15% tax in the fund, and the excess may be taxed a further 46.5% if the separate non-concessional contributions cap is breached.

Managed Investment Schemes (MIS)

As mentioned in previous newsletters, Managed Investment Schemes (i.e. registered agricultural schemes) can generate many tax-minimising benefits, whilst diversifying your portfolio and creating future income streams. These benefits have received a second life following a decision by the Federal Court in late December. The decision clarified the law in relation to tax deductions for contributions to registered agricultural managed investment schemes and this means schemes with favourable tax rulings are likely to reappear in the run up to 30 June.

Following the court’s decision, the ATO announced it will withdraw its current income tax ruling and draft goods and services tax (GST) rulings on these schemes. The ATO plans to finalise the five applications for tax rulings it had on hand so they can be offered this financial year.

Income Protection

Income Protection Insurance is designed to replace income in the event of the insured suffering from an illness or disability. The premium for an income protection policy is tax deductible at your marginal rate. The Tax Office’s view is that the premium paid results in the benefit of income, and as such allows a deduction for it.

If you currently pay your Income Protection insurance premium monthly, quarterly or half yearly, you may consider paying this a year in advance to maximise your taxation benefits. That way you can claim the full cost of your policy and receive your tax return back sooner. Also paying your premium yearly will save you approximately 6% off your premium annually, compared with paying a monthly premium.

Conclusion

While tax planning should be a consideration all year around, the close of the financial year is an important time to look at existing strategies. There are always ways to minimise your tax liability. Just keep in mind that when you’re developing your tax plan, one of the keys to tax minimisation is to not pursue strategies solely for their tax benefits, but to think about them in the broader context of your overall investment strategy.

Remember the 2009 Federal Budget will be announced this Tuesday May 12. This budget will include new tax implications which you will need to understand and consider when doing your taxes again this year.

While our advisers can help you find suitable strategies to minimise your tax, it is important that you seek a tax practitioner for specific tax advice.

 

Please note this is NOT advice. NBF highly recommends you contact your Accountant, business or tax adviser

 
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