The end of the financial year is fast approaching, so there's no time to lose if you are in a position to reduce your tax for this year.
If you have deductible expenses such as repairs and maintenance on investment properties, try to bring them forward so that you will enjoy your tax deduction in this financial year.
You can also bring forward expenses by prepaying 12 months interest on your investment loans. Pre-paying a year's interest on a loan of $300,000 may cost you $15,000, but - depending on your tax bracket - you could get as much as $7,000 back as a tax refund. This strategy requires negotiation with your lender. You can't just bank the equivalent of a year's interest into the loan account - all the lender will do is take one month's interest and credit the rest to the principal.
For capital gains tax, remember that the relevant date is when the sales contract is signed. Therefore, just deferring signing a sales contract until after 30 June can defer the CGT by a year, giving you time to offset it. It also gives you an extra year's use of the money you owe the tax man.
Another strategy is to sell assets that will trigger a capital loss in the same year as you make the capital profit: the losses will reduce the CGT, as they can be offset against the gains. Just keep in mind that capital losses can be carried forward, but capital profits can't. So, if you don't take action to reduce capital profit before 30 June you've missed the chance to do it.
Thanks to the Coalition victory in the election, anybody under 65, or who is otherwise eligible to contribute to super - employed or not - can make personal concessional contributions and claim a tax deduction for them. The limit is $25,000 a year, which includes the employer contribution. Just make sure that your contributions to super are received by the fund before midnight on 30 June.
It may also be possible to reduce CGT by making a tax-deductible contribution to offset the capital gain.
CASE STUDY - Jan earns $50,000 a year, including $5000 employer super. She sells an investment, which triggers a $40,000 capital gain. This will be reduced to $20,000 when the 50% discount is applied, and CGT will be calculated by adding $20,000 to her taxable income. Jan could contribute $20,000 to super as a concessional contribution, creating a tax deduction of $20,000, which will wipe out the capital gain. The only tax payable is the 15% on the concessional contribution.
If you are trying to reduce a bigger capital gain in 2019-20, keep in mind that the superannuation carry-forward rules (previously called catch-up) are now in force, and it may be worth saving some of this year's superannuation contribution in case you need it next year. From 1 July 2019 you will be able to make carry-forward contributions. Provided your superannuation balance at 30 June 2019 is less than $500,000, and you have not used up all your $25,000 concessions cap (including employer contributions) in the 2018-19 year, you could bring forward your own unused contributions into 2019-20.
For example, if your employer contributions are $5000 a year, you may be able to make total additional concessional contributions of $40,000 in the next financial year, and claim a tax deduction for those contributions, provided you have made no personal concessional contributions in the year previous to making the carry-forward contribution.
As always, take advice - getting it wrong can be very costly.
- Noel Whittaker is an Australian expert on personal finance and the author of Making Money Made Simple. Send your money questions to firstname.lastname@example.org.