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End of Financial Year Tax Preparation Tips

27 April 2016

With the end of the financial year rapidly approaching, it is important to start preparing for completing your tax return. David Simon from BT Financial Group has some tips to get you started.

With the end of the financial year rapidly approaching, it is important to start preparing for completing your tax return. Summarised below is a snapshot of several important considerations as well as some of the more housekeeping type tasks ahead ensuring you are in tip top shape for the end of financial year. For more..

These considerations include:

  • Superannuation contributions
  • Investment Loans
  • Tax Return supporting documentation
  • Managing the superannuation contributions caps

There are many important tax benefits associated with investing in super. But to make the most of these benefits you need to understand the different types of super contributions, and be aware of the limits that exist on how much you can contribute to super tax-effectively each financial year.

The two types of contributions are:

Concessional contributions – which are generally made to the super fund by your employer or if you're self-employed, those made by you for which you claim a tax deduction.  Examples of concessional contributions include super guarantee contributions, salary sacrifice amounts, and self-employed personal (deductible) contributions.

Non-concessional contributions - are personal super contributions which you have made from your after tax income or a transfer of assets (including shares held in your own name).

For more on limits, etc see here.

Boost your spouse's super and reduce your tax

If you make contributions to a complying superannuation fund or a retirement savings account (RSA) on behalf of your spouse (married or de facto) who is earning a low income or not working, you may be able to claim a tax offset.

You will be entitled to a tax offset of up to $540 per year if you meet all of the following conditions:

  • the sum of your spouse's assessable income, total reportable fringe benefits amounts and reportable employer super contributions was less than $13,800
  • the contributions were not deductible to you
  • the contributions were made to a super fund that was a complying super fund for the income year in which you made the contribution
  • both you and your spouse were Australian residents when the contributions were made
  • when making the contributions you and your spouse were not living separately and apart on a permanent basis.

The tax offset for eligible spouse contributions can't be claimed for super contributions that you made to your own fund, then split to your spouse. That is called a rollover or transfer, not a contribution.

Access the Government Co-contributions

If you earn less than $50,454 per year (before tax) and make after-tax super contributions, you are eligible to get matching contributions from the government. This is called the government co-contribution.

If you earn less than $35,454 the maximum co-contribution is $500, based on 50c from the government for every $1 you contribute. The amount of co-contribution reduces as your earnings increase.

Low income super contribution

If you earn up to $37,000 you may also get a 'low income super contribution' of up to $500 from the government. You will get this payment whether or not you add extra money to your super. The ATO will automatically make these payments if you meet the criteria. See low income super contribution.

Structure investments inside super

If you have investments outside super that you're setting aside for retirement, and your marginal tax rate is more than 15% you might consider moving/transferring these investments into the super environment. The reason for this is that income from investments held in super are taxed at 15% compared to outside of super where an individual could be paying tax of up to 46.5% (including Medicare levy).

Investment Loans

Borrowing to invest is also known as 'gearing' and it can be a risky business. Gearing can increase your returns when markets are rising but losses can be devastating when the markets fall. If you are looking to use this strategy ask yourself these questions:

  • Do you have secure income from other sources such as your salary to top up the loan if you get a margin call?
  • Do you have a high marginal tax rate so you can make the most of any tax benefits?
  • Are you in it for the long haul? Gearing is generally a medium to long term strategy (at least 5 to 10 years).
  • Is there flexibility in your strategy to allow for changes in your personal circumstances such as having children or a reduction in income?
  • Will you lose sleep at night if your investment performs poorly?

It is important to get independent financial advice when you are investing.

You are generally entitled to claim a tax deduction for the interest expense when you borrow money to invest. Even though interest expense is generally tax deductible in the year it arises you may be able to prepay up to 12 months interest on the loan and bring forward a tax deduction into the current year (therefore reducing your taxable income this financial year). Additionally, by prepaying interest you are locking in the interest rate for the year ahead.

Tax Returns

When it comes to getting ready for tax time, a little organisation goes a long way.  If you've sorted and stored your paperwork, tax time will be much easier and quicker.  To complete your tax return, you'll need two main types of records - those that show the income you've received, and those that show any tax-deductible purchases you've made. The list below is not exhaustive but will help get you started.

  1. Payment summaries from your employer and any other paperwork showing your salary, benefits and allowances
  2. Summaries of benefits received from Centrelink or Veterans Affairs
  3. Statements showing any dividends or investment income you've received, and bank statements showing any interest you earned on your bank accounts and term deposits etc
  4. Motor Vehicle Expenses can be tax deductible if your vehicle is used for work purposes - Fuel, insurance, registration, green slip, repairs and maintenance, roadside assistance and interest costs or lease payments (where a current log book is maintained).
  5. Travel Expenses - Airfares, accommodation, tolls, parking fees and luggage.
  6. Self-Education - Text books, course fees, stationery, photocopying, student union fees and travel.
  7. Work Clothing - Uniforms replacement costs, dry cleaning and home laundry.
  8. Donations
  9. Superannuation Spouse Contribution Rebate (subject to eligibility test)
  10. Did you maintain a parent, parent-in-law or invalid relative? (subject to eligibility test)
  11. Private Health and Income Protection Insurance
  12. Investment Related Expenses - Interest costs, management and maintenance costs.
  13. Other Work Related Expenses - Union fees, home phone, mobile phone, internet, computer hardware, computer software, seminar and course fees, subscriptions to associations, organisers, briefcase, and stationery, electrical and photographic equipment. Check whether you need to keep a log book to prove how certain items, for example a new handbag, was used for work; how much, how often, etc.

Tax Preparation and Advice Fees

Financial Planning Costs - For ongoing support and advice

Planning well ahead of your tax return is a great strategy to ensure you’re well prepared to both  maximise your return and receive that cheque sooner than later. Please speak to your tax adviser for further information on how to prepare for the end of financial year.

For financial advice, contact BT.

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