14 tips on how to reduce your tax exposure
- Capital gains tax
Realised capital losses can be offset against realised capital gains to reduce the net capital gain and therefore tax payable. Caution – 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.
Donations or gifts of $2 or more to approved organisations and charities are tax deductible. Ensure you retain receipts for donations made.
Also, there are some special rules that can allow a deduction for part of the price you have paid for an item at a charity auction, but we will need to check this to see whether you can claim a deduction at all and if so, how much you can claim.
- Derivation of income
Individuals earning over $180,000 remain subject to the additional 2% temporary budget deficit levy which expires on 30 June 2017. It is worth considering whether assessable income can be deferred to the 2018 income year. This requires careful consideration and should be discussed with your accountant.
- Maximising allowable deductions
Expenses that are incurred before year end can reduce taxable income. Consider up-and-coming liabilities and the value in incurring them before year end.
If you have a rental property, consider whether you are maximising claims for capital allowance and capital works deduction on the property. We can assist you with a report from a quantity survey or suitably qualified specialist to maximise your entitlements.
Pay income protection insurance premiums before year end. We can assist you with obtaining quotes from insurance companies that are appropriate for your circumstances.
In limited circumstances, an immediate deduction is available for non-business prepaid expenditure (e.g. interest on a loan relating to a rental property or on other passive investments such as a share portfolio).
- Motor vehicle expenses
There are now only two methods which can be used to claim a deduction for motor vehicle expenses. These are:
- the cents per km method (for up to 5,000 business kilometres travelled); and
- the log book method (log book kept over 12 weeks and updated every five years).
Detailed records assist in maximising deductions.
- Salary sacrifice
Salary packaging has been less attractive over the last few years with the higher FBT rate and restrictions being placed on some of the popular FBT concessions.
For high-income earners earning above $180,000, you have a one-off opportunity to reduce your taxable income when the FBT rate is reduced from 1 April 2017 until the debt tax is removed on 30 June 2017. Just be certain that any arrangements put in place are executed correctly. The ATO will be looking closely at any packaging arrangements that drop an individual’s income below the debt levy threshold level to ensure there is an effective salary sacrifice arrangement in place.
- Low income earners
The tax-free threshold of $18,200, together with the low-income tax offset, means that some low-income earners will not need to lodge income tax returns for the 2017 income year.
- Salary sacrifice bonus into superannuation
You may be able to optimise your tax position by salary sacrificing any end of year bonus into super. There are important considerations that need to be addressed in this regard to ensure it is tax effective and to ensure contribution caps are not breached.
- Superannuation income
Individuals aged over 60 are generally not taxed on any payments from a superannuation fund. Individuals aged between 55 and 60 will generally be taxed concessionally.
- Superannuation non-concessional contributions
Non-concessional contributions can be made up to $180,000 p.a. or a total of $540,000 on a bring forward basis over a 3-year period (provided that the bring forward rule wasn’t triggered in either 2015/16 or 2014/15).
- Superannuation rebate
A rebate of up to $540 is available for superannuation contributions made during the 2017 year for your spouse where your spouse’s income is less than $10,800 pa (this rebate reduces for income amounts up to $13,800 pa).
From 1 July 2017, the spouse's income threshold will increase to $40,000. The current 18% tax offset of up to $540 will remain and will be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $40,000. As is currently the case, the offset gradually reduces for incomes above $37,000 and completely phases out at incomes above $40,000.
- Superannuation personal deductions
We recommend you check that the total of your personal contributions (in respect of which you intend to claim a tax deduction) and any employer contributions during the income year do not exceed $30,000 for individuals under 49 years of age on 30 June 2016 or $35,000 for all other individuals. Concessional contributions above these caps are assessed to the individual at their marginal tax rate, and also incur an interest charge from the ATO.
For a personal superannuation contribution to be deductible in 2017:
- you must be under 75;
- the amount you earn as an employee must be less than 10% of your combined assessable income, reportable fringe benefits and reportable superannuation contributions;
- contributions must be made by 30 June 2017; and
- you must notify the trustee of your fund in writing of your intention to claim a deduction.
- Superannuation government co-contribution
The maximum co-contribution amount that you can receive is $500, based on an after-tax contribution of $1,000 (i.e. for every $1 contribution made, the government contributes $0.50). This is reduced by 3.33 cents for each $1 of income over $36,021 pa up to $51,021 pa. As there are also other qualifying criteria, you should, therefore, contact your accountant or financial advisor if you wish to access this benefit in 2017.
Disclaimer - This article provides general information only, current at the time of production. Any advice in it has been prepared without considering your personal circumstances. You should seek professional advice before acting advice offered here.
Article written by Sandeep Singh, CEO of the business advisory firm, The Golden Chest. Sandeep is an accredited value improvement business advisor, chartered tax and management accountant with over eight years’ experience advising business and professionals on tax planning matters.
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