Summary

Many people ignore tax planning opportunities throughout the financial year and leave planning until the end – when it may be too late. It is not too late to consider the tax planning opportunities that can be implemented before the end of the financial year.
The end of the year is a good time to get you to think about your finances.
It can also be a time to get you thinking about contributing to superannuation and other wealth creation strategies.
 

Defer income

Deferring income to the next financial year provides a timing advantage by deferring the payment of tax on that income. This can provide a real advantage if the your marginal tax rate will be lower next year or if the tax rates are reducing. It may also help to avoid certain additional surcharges (e.g. Medicare Levy surcharge) by reducing assessable income.
Lower tax rates next year due to changes in the tax thresholds from 1 July 2010 may provide an additional benefit to defer income. The tax rates from 1 July 2010 are (excluding Medicare Levy):

Some ideas for deferring income until after 30 June include:

• Negotiating with an employer to defer the receipt of bonuses and/or redundancy payments
• Contractors or consulting companies may invoice their clients after 30 June 2009 (if using cash accounting)
• Directors of private companies can defer paying dividends, and
• Defer the sale of assets which will realise a capital gain.
   

Bring forward deductions

The reverse of deferring income is to bring forward tax deductions to reduce taxable income. Again this can add greater value by bringing forward deductions to a year when marginal tax rates may be higher than the following year.

Some expenses can be prepaid 12 months in advance, with the tax deduction claimed in this year’s tax return.
For small business owners, consideration could be given to paying Superannuation Guarantee payments for the 30 June 2010 quarter before the end of the financial year. This allows this amount to be claimed as a deduction in the 2009/10 financial year. It is important that contributions are received by the superannuation fund (and not just a clearing house) before 30 June to claim the deduction in this financial year.
 

Tax losses

During the economic downturn you may have sold assets and realised capital losses. The market upturn may have seen some investments increase in value to allow an opportunity to realise a capital gain to offset the loss.
Care should be taken not to create a “wash-sale”. Refer to the ATO Taxpayer Alert 2008/7.
 

Self-managed superannuation funds

Superannuation funds can claim tax deductions for expenses and use capital losses to offset capital gains, but this only provides a benefit in the accumulation phase because no tax is payable in the pension phase.
Before starting an account-based pension, it may be worth considering if you have any expenses to be paid or whether assets should be sold to manage the capital gains tax position.

The end of the financial year is also a time to consider how to boost savings. Some strategies are:

• making personal contributions to superannuation and claim a tax deduction
• making a personal non-concessional contribution to receive the co-contribution
• make a spouse contribution and claim the spouse contribution tax offset.

Getting ready for 2010/11

Even if you cannot benefit from opportunities to reduce taxable payable for this financial year, now is a good time to start planning for 2010/11 to gain the maximum advantages for that year.
Planning opportunities include:

• Take out private hospital insurance if income will exceed the Medicare levy surcharge thresholds (compare the cost of insurance and the surcharge)
• Pensioners (and other clients) who do not lodge a tax return for 2009/10 need to claim a refund of franking credits from the ATO
• Employees can consider setting up salary sacrifice with their employer (check that concessional contribution caps are not breached)
• Clients over age 55 can consider the benefits of a transition to retirement (TTR) pension
• Clients with account-based pensions need to select the amount of income they wish to receive for the new year
• Review wills to ensure they are consistent with your objectives
•     Review insurance cover to ensure levels of cover are still adequate.