It’s the week before the end of the financial year, at which time people generally fall into 3 camps: those who have done something about their tax and are smugly sitting back waiting until 1 July so they can pounce and lodge, those who are doing a last minute scramble, and those who are digging their heads in the sand and hoping it will all just go away.
Research undertaken by Officeworks in association with H&R Block shows that almost half of Australians (48%) find tax preparation stressful, and around a third (35%) begrudge tax time and leave preparation until the last minute.
However, for people in camps 2 and 3 it’s not too late to do something, and that something can potentially save you thousands of dollars.
6 last-minute tips to save you tax
1. Time your deductions:
Thanks to the recent budget, tax brackets are moving up. So if you’re earning between $80,000 and $85,000 this year, it may be in your best interest to bring forward or prepay some expenses prior to 30 June. This also works if you’re planning on taking unpaid leave next year, retiring, or taking time off to start a business. If you expect your income to drop, then bring your deductions forward into this financial year when they’re worth more to you.
2. Think about your income:
This is all about being smart about who is paying tax on monies received.
if you have a mortgage and you have money in a savings account, then it’s a good idea to either put your savings onto your mortgage or into an offset account. You don’t pay tax on interest you save and you’ll be saving a higher rate of interest than you’re earning.
If you don’t have a mortgage and are in a committed relationship with a partner who’s not working or is on a small income, then it’s work thinking about holding your joint savings in their name. It’s possible they’ll pay no tax on interest earned versus you paying tax on half the declared interest.
3. Capital gains:
If you’ve sold property or shares and are carrying some poorly performing shares, then consider selling them prior to 30 June so your capital loss offsets some or all of the gain.
4. Understand good vs bad debt:
In Australia we’re hard wired to pay down our mortgage as fast as we can. But if you have a mortgage on your own home, then you’re almost always better off paying interest only on your investment loans. If you’re not doing this, contact your bank or broker and switch to interest only. Depending on your income, might should also consider prepaying some interest this year to take advantage of your higher tax bracket.
5. Revisit your structure:
Is your business in the most tax-effective or asset-protecting structure? You may want to consider other structures rather than simply holding assets or businesses in your own name, such as Super, SMSF, Trusts, or Companies.
6. Superannuation and insurance:
Protect yourself now and in retirement by contributing to super and protecting your income. Income protection insurance is a tax deduction, which means that you can keep earning even if you come off your bike on the weekend. Contributing up to the maximum of $30,000 will help to ensure you have enough funds for retirement. If you simply can’t tolerate the concept of superannuation, then perhaps consider Self Managed Super
Of course, if you really can’t be bothered but you know you should do something then make a last minute appointment with a great accountant and let them do the legwork for you. At the very least, my suggestion is to pick one or two things that you can easily do before 30 June and then as a modern-day philosopher once said, just do it.