Maximise your tax position before June 30

Tax planning can make a significant difference to your financial situation. The following strategies will help you to manage capital gains and reduce income tax for the current financial year.

Use capital losses to reduce Capital Gains Tax

With global equity markets still well below their 2007 peaks, you may have some unrealised capital losses within your portfolio. Although you may not expect these investments to recover in the foreseeable future, and they may no longer suit your circumstances, they can be useful from a tax point of view.

Selling these assets will crystallise the capital loss, which can then be offset against capital gains to reduce tax payable in the current financial year. The realised funds may then be re-invested in more promising opportunities. But be careful when selling a share to realise a loss. If the same share is re-purchased immediately, the tax office may consider the transaction a ‘wash sale’ and disallow the capital loss.

Defer asset sales

When strongly performing assets are sold, Capital Gains Tax (CGT) is imposed on the profit. By deferring such asset sales until after June 30, the CGT liability can be deferred to the following tax year. This strategy is particularly useful if you expect your taxable income to reduce in the next financial year.

Bear in mind that an asset held for less than 12 months will attract CGT on the entire profit. For assets held for more than one year, a discount of 50% applies to the taxable capital gain. With investment property, a capital gain or loss is realised at the time the contract is signed, not at settlement.

Pre-pay investment loan interest

If cash flow allows, by pre-paying up to 12 months interest prior to June 30, you can bring forward an expense that would otherwise be deductible in the following year. This will reduce tax payable in the current financial year.

With interest rates expected to increase during 2010, this strategy may also have the benefit of shielding you from further rate rises. Remember that pre-payment usually applies only to fixed-rate investment loans.

If you are considering this option, please note, a significant amount of time is required for the bank to prepare the documents for a prepayment, so please contact your adviser as soon as possible.

Pay deductible expenses before 30 June

By ensuring tax deductible expenses are paid before the financial year ends, income tax can be reduced for the 2009-2010 tax year. Obviously, you must have an invoice or a liability to the cost but if this is the case, the following deductible expenses should be considered:

• Income Protection premiums. (Alternatively, if you are considering implementing Income Protection Insurance, we recommend that you implement this cover prior to 30 June to ensure that you receive the full tax deduction on the premium paid)
• Payments for Professional Subscriptions/Associations
• New depreciating work assets (laptops, instruments, equipment)
• expenses for work related conferences and travel
• charitable donations
• home office expenses

Personal deductible super contributions

If less than 10% of your assessable income comes from employment, consider making deductible contributions to super. It is critical to ensure you do not breach the new contribution caps (please click here to download a copy of the article on caps that appeared in the February E-Link), and to make super contributions in time for your fund to process them prior to June 30.

The suggestions above provide a starting point to help identify areas that may be relevant to you. Please contact your adviser urgently for further assistance in maximising your tax position.