The end of another financial year is already on the horizon. If you’re like a lot of people, you probably won’t start reviewing your finances until after 30 June, potentially missing opportunities to reduce your tax while building wealth. We've outlined some tax effective strategies below to help you.
1. Government co-contributions
What’s the strategy?
If you make a personal contribution to your superannuation account any time before the end of the financial year, the government will match your contributions by up to $1,000. Using this strategy you can generate a 100 per cent, tax-free return on your investment within one year. And because the money is being invested in super it’s concessionally taxed at a low rate as well.
Who can use it?
Anyone earning less than $61,920 per year, including self-employed people.
2. Sacrifice salary into super
What’s the strategy?
If you’re due for a pay rise or an end of year bonus, you can salary sacrifice this into your super. Salary sacrificing involves sacrificing part of the cash salary from your employer for the provision of a range of benefits, one of which is making extra contributions to your super.
Better still, why not review your current salary packaging arrangement before the end of the financial year ends? Use that pay rise and start contributing a bit more into your super from 1 July 2010. You won’t really notice the difference now but it can make a huge difference by the time you’re ready to retire.
Who can use it?
Anyone in paid employment and able to organise salary sacrificing with their employer.
3. Make personal super contributions
What’s the strategy?
By making a deductible contribution to superannuation, you can reduce your taxable income and therefore decrease your personal income tax liability. If you’ve sold an asset during the year and realised a significant capital gain, you may also be able to offset any personal income tax that would have been payable on the capital gains.
Who can use it?
People who are self-employed, substantially self-employed* or under 65 and recently retired**.
* Your total assessable and exempt income from employment and reportable fringe benefits is less than 10% of your total assessable income and reportable fringe benefits.
** A tax deduction can only be claimed if the super contribution is made in a year that you don’t receive any employer superannuation support.
4. Pre-pay your interest
What’s the strategy?
If you’ve borrowed funds to make an investment that will generate assessable income, you’re entitled to claim a tax deduction for the interest payable on your loan. If you pre-pay the interest on your investment loan NOW – covering the next 12 months - you may be able to claim a tax deduction for that interest in your 2009/10 tax return.
Who can use it?
Anyone who has borrowed money for an investment, or is contemplating doing so before 30 June 2010. It’s especially tax-effective if your assessable income currently puts you in the top marginal tax rate, or if you know you will earn less income next year (e.g. due to maternity leave).
5. Defer Capital Gains
What’s the strategy?
There is a small shift in the marginal tax rates from 1 July 2010 which provides an incentive for some individuals to defer assessable income until after 30 June 2010 so that they are taxed at a lower rate. On the other hand, deductible expenses should be brought forward before 30 June 2010, so that they are tax deductible at the existing higher rate.
Who can use it?
Anyone who is contemplating selling an asset for a capital gain.