Top 10 tax tips for 2012/13
As the final weeks of the 2012-13 financial year come around, it’s the perfect time to review our top 10 tips to minimise your tax. While you should maintain a year round focus on maximising your financial situation, some strategies need to wait until June to implement.
The following key tax tips are worth investigating – after all, the money is better in your pocket than in the taxman’s!
1. Maximise concessional contributions
If you have the cash flow, it makes sense to make the most of concessional contributions to super without breaching the current $25,000 universal cap.
This does need to be managed carefully as there are some payments that count towards your concessional cap, for instance fees and/or insurance premiums paid by your employer count towards your cap. Similarly, if superannuation guarantee is paid on a bonus, this may also push you over the cap. And check the timing of contributions over the last couple of years as your employer may have been tardy in making last year’s contribution to your fund and it could be included in this year’s count. While the ATO currently allows fund members who breach the cap by up to $10,000 to withdraw the funds and only pay their marginal tax rate, this is only for a first-time breach. Subsequent breaches are treated far more harshly with a potential 93% tax penalty applied to breaches of contributions caps.
The recent May Budget announcements will allow individuals to withdraw any excess concessional contributions made from 1 July 2013 from their super fund. These excess concessional contributions will be taxed at the individual’s actual marginal tax rate, plus an interest charge (as would happen for income tax paid late to the ATO), rather than the top marginal tax rate. If the individual is on the top marginal tax rate then they will be hit with a new interest charge.
2. Consider commencing transition to retirement.
If you are aged over 55 and are planning to start a transition to retirement pension, then June is the perfect month. That’s because you don’t need to draw down any money from your pension until the following June – 12 months down the track – thus giving you the opportunity to grow your wealth more and perhaps even pass your 60th birthday when any withdrawals become tax free.
3. Take advantage of co-contributions
While the amount of co-contribution has now dropped to a maximum of $500, it is still money for nothing for those earning less than $46,920.
By making a $1000 non-concessional contribution to your super, those earning $31,920 or less will get a government cocontribution of $500 which tapers down till it cuts out at $46,920. If you are entitled to the full amount, that’s a 50 per cent return on your money!
4. Take a look at your investment portfolio
If you have experienced any capital losses then you might want to utilise these to offset any capital gains. Be aware that if you merely sell shares at a loss and then rebuy them straight away, the ATO deems this to be a wash sale and significant penalties can apply.
5. Pre-pay deductible expenses
Expenses such as premiums on income protection insurance and interest on loans can be paid up to 13 months in advance. This will reduce your income in the current year and in turn reduce your tax liability.
6. Maximise property investment expenses
Make sure you take advantage of all the expenses you can claim from a property investment. For instance, did you know that aside from rates and mortgage payments, you can also claim cleaning and pest control? Ensure that you retain all documentation.
7. Document and claim all work-related expenses
You can automatically write off $300 a year in work-related expenses. With documentation it is possible to claim more.
8. Claim medical expenses
Do you have hefty medical bills? If your net medical expenses (after you have claimed from Medicare and your private health scheme) exceed $2120 then you can claim a 20 per cent rebate on that. However, it is now means tested and those earning more than $84,000 for a single or $168,000 for a couple can’t claim until net expenses reach $5000 and then only offset 10 per cent.
9. Small businesses – review asset purchases
The small business instant asset write-off threshold has risen from $1000 to $6500 for those with an annual turnover of less than $2 million.
10. Bad debt write offs for small business
Small businesses should check your bad debt situation – if you have a bad debt outstanding from the previous year, then write it off as you may be entitled to claim back a GST credit.
Take the opportunity to get your financial house in order, minimise your tax and maximise your wealth. Remember – once it is June 30, it will be too late! Please seek personal financial and tax advice before acting on any of these tips – penalties can be substantial for failing to claim properly.
If you have any questions, feel free to leave a comment below.
^Michael – Practice Development Manager
General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.