The end of the financial year is just 10 days away and because it falls on a Sunday, you really only have a few business days to act. And while you should never do anything for tax reasons alone, you are mad if you don’t try to optimise your position. Here is a run-down of the actions to consider. 

1. Can you bring forward or accelerate expenses, or defer revenue?

If your cash flow is sound and you have a taxable income (that is, you will be paying tax this financial year), you can consider bringing forward expenses and/or deferring revenue. Essentially, a tax deferral strategy where you shift the burden from paying tax this financial year to next year.

Pre-paying interest on loans (for example, a business loan, investor home loan or margin loan) is a classic example. Technically, you can pre-pay interest for up to 13 months in advance and claim the interest expense as a tax deduction in the current tax year.

Taking out an annual subscription to an investment newsletter or professional journal, which will generally be tax deductible, is another example. You can also consider accelerating the payment of other general expenses.

If you are operating a business or are a contractor, you may want to push back invoicing customers so that you defer the receipt of revenue to the 19/20 tax year.

2. Are you a small business that needs some equipment?

In April, the Government announced the expansion of the instant asset write-off scheme which allows businesses to claim a 100% tax deduction upfront on the purchase of equipment. Businesses with an annual turnover of up to $50m are eligible and the equipment threshold has been raised to $30,000.

Some important points to note:

  • The threshold excludes GST, so you can potentially purchase an item that costs up to $33,000 (including GST)
  • Can be new or second-hand equipment
  • It is available on a per item basis and can apply to multiple assets. Potentially, you could spend (say) $150,000 purchasing 5 units of the same item each costing $30,000 (separately invoiced), or 5 different items each costing $30,000.

The main caveat is that you must have sufficient taxable income to apply the tax deduction, and of course, the cash flow.

3. Have you taken any capital gains?

When assets are sold or otherwise disposed, capital gains tax is payable. The main exemption is the family home. The gain (essentially the sale proceeds less the cost base) is counted as part of your assessable income and taxed at your marginal tax rate. If you have owned the asset for more than 12 months, individuals are eligible for a 50% discount (meaning they only pay tax on 50% of the gain), while super funds are eligible for a one-third discount (they pay tax on two-thirds of the gain). There is no discount for companies that own assets.

Capital gains can be offset by capital losses, and if the losses can’t be applied, they can be carried forward from one tax year to the next and then applied to offset a capital gain. If you make a capital loss, don’t forget about it.

If you have taken a gain in 18/19, consider these questions:

  • Do you have any carried forward capital losses from 17/18 that you can apply?
  • Have you taken losses on other assets in 18/19 that you can apply?
  • Do you have assets in a loss situation that you should sell now to crystalize a loss? 

While you should never do anything just for tax reasons, crystalizing a loss on a non-performing asset can often make sense Potentially, you can always re-purchase the asset if you subsequently decide that the sale was a mistake.

Conversely, If you have taken capital losses during the year, you may want to consider the disposal of assets in a gain situation.

One other point to note. If you have multiple parcels of the same asset (for example, shares acquired through a dividend re-investment plan) and you sell part of that asset, you can choose which parcel(s) you sell. There is no set formula (such as FIFO (first in first out) or LIFO (last in first out)) to apply, meaning that you can select the parcels which best optimise your CGT liability. 

4. Can you claim a tax deduction on a personal super contribution?

There are two caps that limit how much you can contribute into super. A cap on concessional (or pre-tax) contributions of $25,000 and a cap on non-concessional (or post tax) contributions of $100,000.

Concessional contributions include your employer’s compulsory super guarantee contribution of 9.5% and any salary sacrifice contributions you make. There is also a third form which is a personal contribution you make and claim a tax deduction for. Previously, this was only available to the self-employed under the ‘10% rule’, but this rule has been scrapped and anyone can now claim this tax deduction.

There are two important caveats. Firstly, you must be eligible to make a super contribution. If you are under 65, or aged between 65 and 74 and pass the work test, you will qualify (there are some particular rules for the under 18s). Secondly, you aren’t allowed to exceed the $25,000 cap on concessional contributions.

Let’s take an example. Tom is 45 and earning a gross salary of $100,000. His employer contributes $9,500 to his super, and he has elected to salary sacrifice a further $5,000. Potentially, prior to 30 June, Tom can contribute a further $10,500 to super and claim this amount as a tax deduction, which he does when he completes his 18/19 tax return. He will also need to need to notify his super fund.

5. Can you boost a partner’s super and get a tax offset?

If your spouse earns less than $37,000 and you make a spouse super contribution of up to $3,000, you can claim a personal tax offset of 18% of the contribution up to a maximum of $540. Potentially, a tax rebate for you of $540 while boosting a partner’s super!

The tax offset phases out when your spouse earns $40,000 or more. Importantly, your spouse’s total super balance must be under $1.6m and they can’t have exceeded their non-concessional super cap of $100,000.

6. Can you get the Government to chip in and boost your partner’s or kid’s super?

There aren’t too many free handouts from Government. The government super co-contribution remains one of the few that is available. If eligible, the Government will contribute up to $500 if a personal (non-concessional) super contribution of $1,000 is made.

The Government matches on a 50% basis. This means that for every dollar of personal contribution made, the Government makes a co-contribution of $0.50, up to an overall maximum contribution by the Government of $500.

To be eligible, there are 3 tests. The person’s taxable income must be under $37,697 (it starts to phase out from this level, cutting out completely at $52,697), they must be under 71 at the end of the year, and critically, at least 10% of their income must be earned from an employment source. Also, they can’t have exceeded the non-concessional cap or have a total super balance over $1.6 million.

While you may not qualify for the co-contribution, this can be a great way to boost a spouse’s super or even an adult child. For example, if your kid is a university student and doing some part time work, you could make a personal contribution of $1,000 on their behalf – and the Government will chip in $500!