“…if anybody in this country doesn’t minimize their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra”
– Kerry Packer when called to appear before the Australian Federal Parliament in 1991.
The best approach to legally avoid paying more tax than you need to, is to get organised at the start of the financial year. As well as making sure you claim all the tax deductions you’re entitled to, think about some of these other ways to reduce your tax bill next year.
1. Income Protection Insurance
The Australian Taxation Office actually encourages you to claim your income protection (or ‘Sickness and Accident’) insurance premiums against your income tax, and if you pay your premium annually in advance before 30 June, you can claim the deduction in the current year. [Read more about Income Protection Insurance]
2. Other Prepayments
If you are able to prepay expenses for the next financial year you may be able to claim them against your income in this financial year. These may be:
- work-related expenses considered deductible by the ATO,
- work tools you know you will need next year,
- investment expenses such as interest on a loan relating to a rental property or some other passive investment such as a share portfolio,
- pre-paying council rates and strata levies relating to a rental property.
3. Capital Gains
If you’re thinking of selling an investment, your timing will likely have a significant impact on the tax you pay. You may wish to consider delaying realising an investment profit until after June 30 and or to ensure that you’ve held it for more than 12 months to access the 50% discount.
Equally, realising an investment loss might mean you’re able to use that capital loss to reduce the tax on any other capital gains.
You must be careful, though. The ATO has a Public Ruling relating to “wash sales”. The Ruling considers that the ATO can apply Part IVA anti-avoidance provisions to cancel offsets and apply penalties so if, for example, you have a loss on your BHP shares, you must not sell them to realise the loss then buy back into them immediately. Make sure you obtain advice from your financial advisor, accountant or broker before acting.
As well as topping up your superannuation balance, making additional personal deductible or employee salary sacrificed contributions may help you reduce your overall tax bill. Talk to your accountant or financial advisor about some of the possibilities including:
- If you’re self-employed (perhaps example retired or not working) you can make contributions to your super and potentially claim a full tax deduction. Concessional contributions (made with pre-tax money) are limited to $30,000 per person per year ($35,000 if you are above 49 years of age).
- Salary sacrifice is available to employees, subject to the same concessional contributions cap. If you are lucky enough to earn an annual bonus you may be able to arrange with your employer to salary sacrifice it into superannuation.
- If your spouse is on a low income, you could receive a tax offset for making a contribution to their superannuation fund, as long as their assessable income is less than $13,800.
- If your income is below $50,454 make enough of an extra contribution to receive the Government Co-contributions.
What are your thoughts?
Do you have any hot tax tips for our members? Join the conversation — leave a comment below and let us know what you’re thoughts are.