As you gather your paperwork for your tax return, it’s a good opportunity to reflect on how next year could be better.
It goes without saying that planning and a bit of organisation goes a long way towards helping to create the best conditions for a good result.
Keeping good records means that you remember to include all the deductions you can and you keep yourself on the right side of the law by reporting everything you should.
With your recordkeeping in order, you can turn your attention to the various ways to legitimately improve your future tax position. Making use of your financial adviser’s knowledge and experience is a good start but in the meantime, here are four ideas to consider.
1. Time the sale of assets
If you’re planning to sell an asset that may be subject to capital gains tax (CGT) you may consider either delaying or bringing forward the sale if your income next year is expected to be considerably less or more than this year.
A capital gain or loss on an asset is the difference between what the asset cost you and the sale price. You’ll pay tax on any capital gains and you can offset your capital gains against any capital losses. Most personal assets are exempt from CGT but assets such as investment properties or shares are affected.
Timing can make all the difference when it comes to capital gains and losses. For example, if you’re expecting to make a big profit when you sell your investment property, that will be added to your taxable income. So, if the income you expect next year is less than this year, it may make sense to delay the sale of the property.
Whatever you decide, it’s worth remembering that CGT rules are quite complex and good advice is essential.
2. Time your expenses
Similar to the strategy of timing the sale of assets to possibly minimise tax, you can also bring forward the payment of certain fees and expenses to claim more deductions now rather than later.
For example, you could choose to prepay all of next year’s interest on a loan for an investment property, business equipment or shares this year. That way you increase your deductions against this year’s income.
The same strategy can be used with any genuinely tax-deductible expenses such as insurance that’s related to business, work or investments. Businesses may also be able to prepay other expenses such as equipment and fees or investment property owners could bring forward repairs and maintenance.
3. Time your super payments
As we head into another tax year, it’s a good idea to plan how you’ll manage your superannuation account and payments. While it’s almost certain that the limits on pre-tax and after-tax contributions will change this year, it will still be a good idea to pay extra cash into your super before the end of next financial year to take advantage of whatever tax concessions are available. Making the maximum possible contributions to your super, as far ahead of retirement as possible is always a tax-effective way to increase your wealth.
Ask your financial advisor how you can make most of any changes.
4. Time your business cash
Small businesses gain on many fronts from comprehensive plans and forecasts. For example, predicting cash flow and expenses helps decisions about when to purchase new equipment or whether it’s wise to contemplate major expenditure.
Having an idea of how the year will look, financially speaking, is also helpful for planning an improved tax result. You’ll be better informed about when and how much to spend or you may choose to defer income if necessary.
The amount of tax you pay can be largely affected by good or bad timing so it makes sense to, where possible, control income and expenses.
This article has been prepared by Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) based on its understanding of current regulatory requirements and laws as at 1 June 2016. It may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement available from Colonial First State carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. Information taken from sources other than Colonial First State is believed to be accurate. No member of the Commonwealth Bank of Australia Group, its employees or directors, provides any warranty of accuracy or reliability in relation to the information or accepts any liability to any person who relies on it.
Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent professional tax advice before making any decisions based on this information.
Colonial First State Investments Limited is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.