Financial year end planning is of particular importance in the context of the severe financial stress of the 2009 financial year as it closes out, following the Global Financial Crisis (GFC) unleashing on us in late 2008 – and the sharemarkets globally, just ceasing the seemingly incessant downturn and starting their recovery.
The effectiveness of some of the strategies mentioned below will depend on your personal taxation circumstances: whether an employee, a sub-contractor or a self-employed business operator (carrying on business under a structure): you need to confirm any proposed course of action with your accountant, tax agent or financial planner before acting on them. Nevertheless, financial year end planning is always relevant. (Please refer to the general disclaimer published with this commentary.)
Maximise superannuation contributions
The maximum superannuation contribution amount for which a tax deduction can be claimed for the 2009 financial year (FY) is $50,000 for those under 50 years of age; and $100,000 for the over-fifties who qualify to make superannuation contributions. From 1 July 2009, these maximum limits will be halved.
Contact your adviser to ensure that you optimise your superannuation savings opportunity – and the tax benefit from so doing. You may need to make a contribution from your personal resources, or salary sacrifice significantly from your final month’s salary.
Prepay any ‘deductible’ interest
Prepaid interest for the coming twelve months on loans for income purposes is tax deductible provided there is a commercial/ financial benefit in making the prepayment.
Contact your adviser to ensure that any intended prepayment will satisfy the requirements for deductibility – and is affordable.
Purchase computers for the (school-age) kids
The government has approved a tax deduction for computers purchased to assist school-age children with their education. Limits apply and the purchase needs to be completed before 30 June to be tax deductible this year.
Contact your accountant or tax agent to ensure you get the timing – and the tax deduction – right.
Realise capital gains to offset any capital losses
Even in difficult economic times, the structure of the Capital Gains Tax legislation can result in a disposal of assets giving rise to a taxable Capital Gain. From a financial management point of view, taking advantage of any ‘quarantined’ capital losses at the earliest convenience is of greatest benefit. In some circumstances, rules may apply.
Contact your adviser, accountant or tax agent and ensure that any benefits available on this front are taken up in the current year’s tax – action may be necessary and time is getting short.
Repair rental properties
If you are directly invested in rental properties and there is any imminent need of repair, undertaking that repair before 30 June should result in the cost being tax deductible for you in this financial year.
Contact your accountant or tax agent to determine whether this is an appropriate course of action in your case – and check with tradespeople that they can get the work invoiced before 30 June.
Pay essential advice fees
Your accountant, tax agent or financial planner may offer a Fixed Price arrangement for annual servicing cost: if this is able to be negotiated and implemented before 30 June, you may be able to deduct the costs for the 2010 year in the 2009 tax return.
Contact your relevant adviser in this regard to see if the offer is available, if it suits your situation and if it can be established in time to deduct the cost for the coming year’s services when paid by 30 June.
Investment Allowance for business equipment
In the Federal Budget this month, the government increased its previously announced ‘investment allowance’ from 39% to 50% – and extended the time for its implementation. Any business asset acquired before 30 June will result in a tax deduction for 50% of the cost in this financial year’s tax return; a similar deduction is available for next year with any expenditure committed before 31 December 2009.
Contact your accountant or tax agent for advice on what qualifies in your circumstances and ensure the acquisition is contracted before 30 June – for the tax deduction in 2009; or before 31 December – for the tax deduction in 2010.
Ensure Income Protection insurance in force; and paid
The premiums for such policies are generally tax deductible (for employees as well as for sub-contractors and other self-employed persons). In a separate article published by Continuum Financial Planners today, we outline the benefits and features of this type of insurance cover. Suffice it to say at this point, that all income earners should consider carrying this form of insurance.
Contact your adviser to ensure that the cover you need is in place and that the premiums have been paid before the financial year end 2009 so that you can claim your tax deduction for this year.
Some general year-end tips –
Employers – ensure the superannuation guarantee – and salary sacrifice amounts – are paid before 30 June to ensure deductibility in the 2009 financial year. You can pay by 28 July and avoid the surcharge, but the deduction won’t be available until the tax year in which it is actually paid!
Co-contribution – eligible undeducted superannuation contributions up to $1,000 in any one year can benefit from a government contribution of up to $1,500. Check the ATO website references as to eligibility; and entitlements.
Business operators will also be looking for year-end strategies such as –
- Stocktake valuation (scrapping outdated materials/ items)
- Bad Debt write-off
- Asset Register items revision (scrapping items that are no longer functional; selling out items no longer required)
Regardless of your role in industry, commerce, or public service, financial year end planning will ensure your best financial outcome from a taxation perspective at least, every year.
