Year end tax tips

With the end of the financial year approaching quickly, there are quite a few benefits available from acting now. Some things enable you to reduce your tax liability and others take advantage of some very generous one-off opportunities.

Prepay expenses

Prepaying expenses before year end can be a great way of reducing your current tax liability. It can be particularly beneficial if you expect to be on a higher tax bracket this year than next year. Additionally, if payments are due early in the next financial year, payment may get you the tax benefit much earlier.

Individual taxpayers such as employees and investors can claim a deduction for a prepayment provided it relates to a period that will end in the next financial year and is for no more than 12 months. Typically, this includes subscriptions, memberships and interest paid on investment loans. Business taxpayers who declare their business income under the Simplified Taxation System (STS) are also entitled to these deductions.

If prepaying interest, make sure the financial institution is aware of what you are doing. Otherwise they might use the payment to reduce the principal and no deduction will be available.

To be deductible, a prepayment must be incurred. Before making rent, insurance, interest or lease payments etc. for the purpose of claiming a prepayment deduction, check your contracts to ensure they can be made. Advance voluntary payments may not be deductible.

Taking advantage of super

If you are self-employed or do not have employer superannuation support, a very effective way to reduce your tax liability is to make a deductible contribution into your super before 30 June 2007. There are limits and rules associated with these contributions but we would be pleased to advise you on your most effective actions.

Individuals have until 30 June 2007 to take advantage of a one-off opportunity to transfer up to $1,000,000 of after tax contributions into their superannuation. If you have substantial assets that qualify for transfer into this tax-effective environment, you must act quickly. After this date, you will be generally limited to $150,000 per year of after-tax contributions meaning contributions over that limit will then be taxed at penalty tax rates.

Consider making an after-tax payment (up to $1,000) into your superannuation and the Government will contribute $1.50 for every $1.00 contributed by you if your income is less than $28,000. This co-contribution gradually decreases and ceases once your income reaches $58,000.

Why not consider a contribution for a spouse or child who has an income below the threshold?

Salary packaging

With the changing of personal income tax rates announced in the Budget, now is the opportune time to review salary packaging. There are still worthwhile advantages to be gained from salary packaging but it is a complex area. Many employees will need to consider whether they should continue to receive fringe benefits that will be subject to Fringe Benefits Tax (FBT) at the rate of 46.5%.

Fringe benefits that are fully taxable and are provided as part of a salary package to employees who pay less than the top marginal tax rate are less tax effective than if they were not packaged and simply paid out of after tax salary. However, certain concessionally taxed benefits (such as an employer-provided car) may still be worth packaging, as are exempt fringe benefits (such as a notebook computer).

Tax free minor benefits

Employers can now provide minor and infrequent benefits, valued less than $300, to employees. Why not consider a gift voucher instead of a performance bonus? This is tax free to the employee and is exempt from FBT.

Employers paying employee super

If you wish to receive a tax deduction in the current year for employer superannuation contributions, they will need to be received into your employees' super funds by 30 June 2007.

Act now!

Our Taxation Planning Strategies seminar on 19 June 2007 will look at many potentially advantageous issues.

Whilst it is a busy time of year, acting early can really be most worthwhile.

Published : 7 June 2007