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Our Top 5 End of Financial Year Strategies

Article By Adam Hurwood | | Financial Planning
In the lead up to 30 June there are a number of compelling reasons to start a conversation with your adviser asking about the advantages of specific financial year-end strategies.

Implementing year-end strategies can result in significant tax benefits for you and help boost your retirement saving, reach investment goals sooner or protect your family, business and quality of life more effectively.

The top 5 strategies for this financial year are follows:

Prepay investment loan interest and reduce this year’s tax

When you borrow money to make an investment that will generate assessable income (often called ‘gearing’), you’re generally entitled to claim a tax deduction for the interest on the money borrowed. The interest may be:

Less than the income earned – positively geared;

Equal to the interest earned – neutrally geared; or

Greater than the income earned – negatively geared.

The interest you pay is generally tax-deductible in the year it falls due. However, if you have a geared investment portfolio in your own name, you may be able to prepay up to 12 months interest on the loan and bring forward your entitlement to the tax deduction to this financial year, depending on your personal circumstances. Tax rules are complex and may change over time, so you should consult your tax professional or Financial Planner regarding the consequences of gearing.

Sell a small business tax-effectively

Subject to meeting the basic requirements, business owners can take advantage of the Government’s small business concessions to reduce, or even extinguish, any Capital Gains Tax (CGT) realised from the sale of a business or business asset. If the business asset was held for more than 15 years, and the owner is either over 55 and retiring or permanently incapacitated at the time the asset is sold:

Any capital gains could be disregarded; plus

Up to $1,255,000 of any sale proceeds could be contributed into super without counting towards the concessional or non-concessional contributions caps.

Prepay a year’s worth of income protection premiums

If you have, or are considering income protection insurance, you can prepay your premiums for up to 12 months. This may allow you to bring forward a tax deduction from the following year into the current year – potentially reducing your taxable income this financial year.

Get more from your salary or bonus

If you’re an employee, you can often enter into a salary sacrifice arrangement with your employer whereby you choose to give up or ‘sacrifice’ part of your before-tax salary/bonuses and add it directly to your super account. If your marginal tax rate is more than 15%, salary sacrificing into super will reduce the tax you pay, and help give your retirement savings a valuable boost. This is because salary sacrifice contributions within your concessional contributions cap are taxed at a flat 15% rather than your marginal tax rate. If you’re self employed you can at any time during the financial year make a contribution up to the maximum limit. The maximum amount of concessional contributions you can make during the 2012/13 financial year is $25,000.

Invest inside super to save tax

If you have investments outside super that you’re setting aside for retirement, and your marginal tax rate is more than 15%, you might want to consider moving these investments into the super environment. The reason for this is that investments held in super funds are taxed at 15% or less, instead of your marginal tax rate of up to 46.5% (including Medicare levy) outside super. The benefits of this strategy are even more pronounced after you start a pension with your super benefits, at which point:

Any earnings on the investments supporting the pension are tax-free;

Up to age 60, the tax you pay on the pension income you draw may be reduced by tax offsets, and/or you may receive some income tax-free if you’ve made after-tax super contributions;

After age 60, any income or benefits you withdraw from super are tax-free.

Contact your Altitude adviser to assist you in implementing strategies that work best for your individual circumstances and specific needs before 30 June arrives.

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