Tax planning for Individuals - Minimising the tax you pay legally
May 09, 2015
May 09, 2015
As a taxpayer, do you know you are allowed to arrange your financial affairs in a legitimate manner, to provide you with greatest tax advantage? There are plenty of ways to minimise your tax liability legally and effectively so that you are not paying too much tax than you are required to.
In this article, we will discuss a few common and proven strategies for individual taxpayers.
Tax planning strategies through superannuation
- Tax deductible super contributions - You may make tax deductible personal superannuation contributions to reduce your taxable income. These super contributions are taxed at 15% which is lower than the typical marginal personal income tax rates of between 34.5% and 47.5%. However, it is important that you don’t contribute more than the annual concessional contribution limit of $30,000 for persons under 49 years of age and $35000 limit if aged 50 or over as at 01 July 2014. DO NOT EXCEED THESE LIMITS as any contribution that go over these super caps will be included in your assessable income and taxed at your marginal tax rate plus an interest charge called the excess concessional contributions (ECC) charge.
- Salary sacrifice - If your marginal tax rate is 19% or more, salary sacrifice can be beneficial for you to boost your superannuation and pay less tax. You may need to discuss with your employer regarding allocation of superannuation contributions through salary sacrifice, to the correct financial year. If you are at risk of exceeding super caps through your salary sacrifice arrangements, you may need to consider reducing your salary sacrifice amounts.
Please contact our Superannuation specialist to discuss your situation, assess your eligibility for various options available including government co-contribution, spouse contributions, re-contributions, transition to retirement pension strategies.
Reduce your Capital Gains Tax liability
- Ownership of investments – You may consider reviewing ownership of your investments. Any change in ownership needs to be carefully planned in relation to capital gains tax and stamp duty implications.
- Realise capital losses - You may have to consider crystallising any unrealised capital gains and losses in order to improve their overall tax position for an income year. For example, if you anticipate a significant capital gain in the current income year, you may consider selling any poorly performing assets before 30 June to offset the capital loss against the realised capital gain and reduce your capital gains tax liability.
- Defer investment income – You may consider to arrange to receive income from your investments such as interest on term deposits and sign off the contracts for the sale of Capital Gains assets AFTER 30 June 2015. Please note, for CGT purposes, a sale is occurred on the date contract is signed, not on the date of settlement!
- Work related expenses - Keep all the receipts for work-related expenses that can be included as a deduction in your tax return. This includes:
- cost of uniforms, laundry and dry cleaning expenses
- union fees and subscriptions to trade, business or professional associations
- self-education expenses such as training courses and learning material
- work from home expenses and
- Certain miscellaneous expenses.
- Travel expenses - Keep a record and receipts of work-related travel expenses you incur that are directly related to your work as an employee. This includes: travel fares, road tolls, parking fees, car hire, meal, accommodation and incidental expenses you incur while away overnight for work and a few more.
- Motor vehicle expenses - Make sure that you have maintained your Motor Vehicle Log Book for at least 12 continuous weeks, started on or before 30 June 2015. That 12-week period needs to be representative of your travel throughout the year. You should make a record of your odometer reading as at 30 June 2015, and keep all receipts/invoices for your motor vehicle expenses. Each logbook you keep is valid for five years. If the nature of the travel, type of vehicle and business use percentage alter, you may need to start a new log book. If you haven’t kept a log book, we can discuss the other available options for you to maximise your deductions.
Prepayment of investment expenses & Interest
You may need to consider paying investment related expenses such as repairs to your investment property, investment memberships, subscriptions, journals before 30 June 2015. Further, you can pre-pay up to 12 months of interest before 30 June on a loan for a property or share investment and claim a tax deduction in the current financial year.
Income Protection Insurance
The insurance premium on your income protection insurance is generally tax deductible. You can pay the premium of the income protection insurance up-to 12 months before 30 June and claim a tax deduction in the current year.
Net Medical Expenses Tax Offset
Net medical expenses are total medical expenses less refunds from Medicare or a private health insurer which you, or someone else, received or are entitled to receive. The offset for the medical expenses only applies if the total of your net medical expenses exceed $2162 if you are single or $5100 if you are a couple/family. This amount excludes the contributions to private health insurance, travel or accommodation expenses associated with medical treatment or inoculations for overseas travel.
You may need to review your net medical expenses and consider prepaying net medical expenses if you are close to the relevant threshold as mentioned above.
As net medical expenses tax offset is being phased out, changes this year mean you need to check your eligibility before claiming the offset in your tax return.
Schedule your appointment with us by clicking the link below before 30 June, to find out what tax minimisation strategies are suitable for your individual situation and assist you in the preparation of your tax return.