10 June 2010
Tax tips for investors
With the end of financial year approaching, investors' thoughts turn to tax. In this edition of Investment News, we consider some concrete steps that you
may be able to take to optimise your taxation position.
Six tips for all investors
- Co-contribution: The federal government co-contribution scheme helps eligible investors boost their super balances. To qualify, you must make a personal contribution by 30 June and your total income must be less than
the designated amount, with 10% or more from eligible employment, running a business or both.
- Concessional contributions: you can make pre-tax contributions to super up to $25,000 or, if you are over 50, $50,000. If done by salary sacrificing, you will increase your super balance whilst reducing your tax liability. If done by personal contribution, you can reduce your taxable income and decrease taxation. This could be used to offset capital gains for the sale of an asset during the financial year.
- In specie transfer to super: certain assets can be contributed into your super account, where they will be taxed at the super fund tax rate (maximum 15%) instead of your marginal rate. The eligible assets include securities, interests in a widely held trust and business real property.
- Review pensions: if you have already drawn your minimum pension, you can elect to receive no additional payments for the remainder of the financial year to preserve the capital in your fund. If you are over 55 and still working, you could consider a transition to retirement strategy to provide tax incentives to move benefits from the accumulation phase to the tax-free pension phase.
- Gearing in super: Borrowing for investment within super can generate increased returns if invested wisely. However, there are restrictions governing this strategy. It can be of particular assistance if you are restricted from further super contributions by the contribution caps.
- Prepaying interest: if you have borrowed money for an investment you may be able to prepay the interest for the 2010-2011 financial year and obtain a deduction in this year's tax return.
Ten year end tips for property owners
- Renovations by previous owner - You may be eligible for a deduction for depreciation on the cost of improvement by a previous owner, provided items are identifiable and itemised in a depreciation schedule.
- Property and Self-Managed Superannuation Funds (SMSF) - Review your property acquisition strategy and determine whether there are advantages to holding property in a SMSF, taking into account the borrowing restrictions of a SMSF and the impact on your overall buying capacity.
- Immediate deductions for low cost assets - Generally you will receive a deduction for assets costing $300 or less provided that they are: used for income producing purposes other than carrying on a business; they are not part of a set of assets; or one of a number of identical items that have a combined value greater than $300.
- Non-commercial rental arrangements - If you rent a property to family or friends at below market rent you may not claim the total rental property expenses as a deduction.
- Substantiate your claim - Make sure that you have the receipts to prove your deduction and show why the expense was incurred to derive assessable income.
- Acquisition and disposal costs - You cannot claim the costs of either acquiring or disposing of your property. However, you will need details of these costs.
- Prepare a depreciation schedule - You may consider having a depreciation schedule prepared by a qualified quantity surveyor. The costs of having one prepared is tax deductible and it may add a significant tax deduction for depreciation.
- Repairs at time of purchase - Expenses for repairs to property are generally deductible provided that they relate to wear and tear or other damage as a result of earning rental income. The cost of initial repairs at the time of purchase is not deductible.
- Prepay property expenses - You may be able to prepay property expenses up to 12 months in advance. Prepaid expenses are not automatically deductible. A review of eligible prepayments should be carried out.
- Travel and car expenses - If you have travelled to inspect, carry out maintenance or collect rent you may be able to claim the costs of travelling as a tax deduction.
Ten year end tips for business owners
- Personal Services Income (PSI) - Recipients of PSI should ensure they satisfy PSI provisions and that a review of allowable deductions is carried out before year end.
- Review franking account - Consider whether there is a benefit in paying a dividend to take advantage of company tax credits.
- Obsolete stock - The year end stock-take should involve a review of all stock and a decision made in relation to its value from both a tax and commercial perspective. Obsolete stock may be scrapped or valued below cost subject to specific guidelines.
- Tax file numbers - Ensure that tax file numbers that have been provided to you by the employee are forwarded to the employee's superannuation fund.
- Staff bonuses and commissions - As with directors' fees, a company may claim a tax deduction for staff bonuses and commissions that are unpaid at 30 June 2010 provided that they were "definitely committed" to the expense prior to the date. This also applies to wages that have been accrued at 30 June 2010 but not paid until after that date.
- Trading stock - Plan to physically count the stock on hand at 30 June. If it is not practical to have it completed by that date ensure that you are able to track movements in and out from sales and purchases.
- Bad debts - Review all bad debts before year end. In order to write off a debt it must be bad, not merely doubtful and must have been previously included as assessable income. You need to be able to substantiate a claim for a bad debt.
- Review private loans - Where a private company provides loans to shareholders, a review of the loan arrangement is necessary. Specific rules apply to loans which may have the effect of the loans being deemed as unfranked dividends.
- Fixed assets - Review last year's fixed asset register to determine if assets listed still exist. Identify missing items and list new ones acquired.
- Repairs and maintenance - Review all spending during the year to determine if all items are deductible or if they are capital by nature and need to be depreciated.
As always you should consult your accountant or financial planner before acting on any of the opportunities presented in this newsletter.
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Head of Funds Management
t +61 3 8610 2811
Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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