JUNE 30th is fast approaching and this column is a reminder of things you should do before the financial year ends.
First, check your superannuation contributions and where possible increase them to the maximum. Just be aware that you lose access to money placed in superannuation until your preservation age which is at least 55 and also that there are heavy penalties for making excess contributions.
If you have investment properties do your best to make arrangements for repairs and maintenance prior to June 30th. The work does not have to be physically done and you can claim a tax deduction in the current financial year as long as you have signed a binding contract.
By all means talk to a quantity surveyor about having a depreciation report done for each investment property you own. The cost will be around $500 per property which is tax deductible and will almost certainly pay for itself in the first year as it will almost certainly uncover quite a few deductions you would not have thought of yourself. This is a once only fee so once you have paid it you won’t have to worry about doing it next year.
CGT can take a chunk of any investment profits, but remember that the relevant date is the date the sales contract is signed. Therefore just deferring signing a contract until after June 30th can change a situation so that the CGT is paid when you are in a lower tax bracket. It also gives you an extra year’s use of the money you owe the tax man.
Anybody who is eligible to contribute to super but who does not have an employer making contributions for them, could also reduce CGT by making a tax deductible contribution to offset the capital gain.
CASE STUDY – A couple are retired and in their early sixties. They sell an investment for $600,000 which triggers a $200,000 capital gain. This will be reduced to $100,000 when the 50 percent discount is allowed for and CGT will be calculated by adding $50,000 to the taxable income of both. They could contribute $200,000 each to super and apportion it $50,000 concessional and $150,000 non concessional. This will create a tax deduction of $50,000 each which could wipe out the capital gain. The only tax is the 15% on the $50,000 concessional contribution.
Just make sure you take advice before adopting any of these strategies as getting it wrong can be very costly. Also be aware that once July 1st arrives you have lost almost all of your tax saving options.
Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is email@example.com.