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Last-minute tax planning for individuals

The current financial year is almost at an end, but there are still strategies you may be able to put into play to ensure you pay not one cent more tax than is necessary for your 2015-16 income year.

The best tax planning is adopted in July, not June — that is, as early as possible in any financial year, not right near the end of it. It is also wise to remember that proper tax planning is more than just finding bigger and better deductions — the best tips are those that set your tax affairs in better order not just for the current financial year but also for future income years.

Not all of the following tips will suit your circumstances, but as a list of possibilities they may get you thinking along the right track, and have you asking us the right questions. Of course check with TNR if you need further information.

INVESTMENT PROPERTY EXPENSE CLAIMS

Many expenses stemming from owning a rental property are claimable, so it can be helpful to make any payments that you can before June 30 and claim these expenses in the present financial year.

If you know that your investment property needs some repairs or requires attention regarding, say, pest control or other measures, see if you can incur these costs before the financial year end.

PREPAY THE INTEREST ON INVESTMENT LOANS

In a similar vein, see if you can negotiate with your finance provider to make upfront interest repayments for certain  investments, such as a margin loan on shares.

Most taxpayers can claim a deduction for up to 12 months ahead. But make sure you review how you and your lender have allocated funds secured against your property correctly, as a tax deduction is generally only allowed against the finance costs incurred for the purpose of earning assessable income from investments.

A deduction may not be available on funds you redraw from this loan that is put to other purposes.

BRING FORWARD EXPENSES

Try to bring forward any other deductions (like the interest payments mentioned above) into the 2015-16 year.

If you know that next fiscal year you will be earning less (such as going on maternity leave, going part-time etc), deductible expenses that can be brought forward into the present financial year will provide more financial benefit now than if they are left to fall into the next income year.

An exception for some lucky individuals will arise if you expect to earn more next financial year. In that case it may be to your advantage to delay any tax-deductible payments until next financial year, when the financial benefit of deductions could be greater.

Your personal circumstances will dictate whether these measures are appropriate and TNR can assist with this.

USE THE CGT RULES TO YOUR ADVANTAGE

If you have made and crystallised any capital gain from your investments this financial year (which will be added to your assessable income), think about selling any investments that are currently sitting on a loss before the year-end.

Doing so means the capital gains you made on your successful investments can be offset against the capital losses from the less successful ones, reducing your overall taxable income.

A similar approach could also be adopted if you have carry forward capital losses and wish to realise some gains at year end.

Keep in mind that for CGT purposes a capital gain generally occurs on the date you sign a contract, not when you settle on a property purchased. When you are making a large capital gain toward the end of an income year, such as selling an investment property, knowing which financial year the gain will be attributed to is a great tax planning advantage.

Of course, with all of the above, tread carefully and don’t let mere tax drive your investment decisions – check with TNR to determine whether your approach will suit your circumstances.

FINAL REMINDERS

No-one knows your affairs better than yourself, so you will recognise if any of the above tax tips applies to your circumstances. But no-one is better informed as to what is appropriate, or indeed allowable, than your tax agent (and don’t forget, any fee is an allowable deduction in the year it is paid).

Every individual taxpayer is required to lodge their return before October 31, but tax agents are generally given more time to  lodge, which can be a handy extension to a payment deadline.

Of course, if you’re sure you are going to get a refund it’s no use delaying, so in these cases it is worth getting all of your information to TNR as soon as you can after July 1.

With an election to be held two days after the end of the financial year, the federal budget measures will of course have no chance to take effect until some time into the next income year