Taxation planning – End of Year Tax Tips Part 3

This is a continuation to our tax tips series so if you haven’t already, we recommend you check out the first part of this series.

  1. Defer income until next financial year. There is both an upside as well as a downside to this strategy. All you’re really doing is putting off the inevitable – however sometimes that’s not a bad thing. If you have the ability to choose when you’re paid some of your money, such as a bonus, a redundancy or just customer payments, putting them off until July 1 will mean you’ll have an additional 12 months to pay the tax on that income.If you’ve got a particularly high income for this year then putting off income until next year may also mean that when you do have to pay the tax, you’ll be paying less. Even better is if you’re retiring next financial year – depending on the amount of income you defer, you could potentially pay no tax at all.
  2. Consider selling. If you have any capital gains, have a look in your portfolio to see if you have any losses hanging around – and subject to your approach to portfolio management, you may want to sell them. While capital gains are added to your income, capital losses can only be offset against capital gains – so use them carefully.
  3. Get your donations in early. If you’re considering donating money to a charity, anything over $2 is going to be tax deductible. Given this, if you’re thinking of giving money to your favorite charity, or a new one – doing so before 30th June will have you getting a percentage of your donation back in your tax return sooner rather than later. Feel good about giving, and feel even better getting something back sooner.
  4. Get your repairs in. If you have an investment property, now is the time to call in the plumbers, painters and carpet layers. Any capital improvements are generally not tax deductible however you can depreciate them. Repairs, on the other hand, tend to be deductible when you incur the expense, so if you get those important repairs done now, you’ll get money back in your tax return sooner. An added advantage is that if you currently have tenants, they’ll be much happier if you’ve made repairs earlier rather than putting them off.
  5. Get your division 7A share holder loans in order. It’s common practice to borrow money from your own private company, and many years ago it was as simple as making an entry in your accounting software. However, these days if you borrow money it has to be properly documented, and it also has to be treated as a normal loan. Therefore, interest rates, payment terms and amounts should apply. The ATO has become very strict on this in the past couple of years. If you’re not making repayments on the loan, the ATO can deem the loan amount to be income, and you’ll have to pay tax on it.