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As June 30 looms, it is time to pay attention to tax-saving strategies. Individuals should be aware of changes announced in the recent budget, especially the new tax-rate thresholds, and the investment products on offer that can be used to reduce tax bills. The budget changes mean that from July 1, the 30 per cent tax rate threshold will increase from $25,001 to $30,001 and from July 2008 the 40 per cent rate threshold will be bumped up to $80,001. The 45 per cent rate will kick in at $180,001. Individuals whose taxable income is close to the new tax thresholds may delay receiving income until the new financial year when the lower tax rate applies. They can also bring forward tax deductions, such as prepaying interest on geared investments, to this year when a higher marginal rate applies. Another strategy is to delay realising capital gains until the next financial year, or for those who have capital gains to make use of any capital losses in the sharemarket. Negative gearing shares or property will generate tax deductions on the interest payable but the risk is both gains and losses will be amplified and it is not necessarily a short term strategy. Any investment plan involving those assets should run over a number of years. While the numbers on margin lending into Australian equities have been most impressive in recent times, the numbers can look terrible when the market, or your shares, underperform. Whilst it would be great for the run on Australian shares to continue, many long term return forecasts are in single figures. However, there is a bias in the tax system to borrow to gain shares rather than property. That is, an investor on the top marginal rate of tax receives a tax deduction at the top marginal rate for outgoings such as interest and yet receives concessional tax treatment on receipts such as franked dividends and capital gains. It should be noted that with this type of investment, while the interest rate may be higher, you're also getting access to funds you wouldn't normally get. The loans also can be capital protected where an interest premium is paid to provide downside risk protection - if the shares drop, the investor can walk away. It suits someone who doesn't want to suffer the downside and is willing to give up a portion of the upside to pay for it. Tax experts all agree that superannuation is one of the best options available. Most salary and wage earners would have their salary packaging set in advance, self employed individuals could make deductible contributions to their super fund. They may claim a tax deduction of $5,000 plus 75 per cent of contributions of more than $5,000 up to their birthday. Make sure the last contribution is made after your birthday to ensure you get the higher limit. The downside is that investors are locking away their money until retirement. Individuals whose spouse earns less than $13,800 can make contributions to their super fund and get a tax offset of up to $540. Those who earn less than $58,000 can also make the most of the government's co-contribution scheme, where the government will contribute $1.50 for each dollar paid into super to a maximum co-contribution of $1,500. Individuals can also package life insurance within superannuation, where the cost of the cover will be lower for self employed, employees making salary sacrifice contributions or eligible spouse contributions. Another smart option, is to consider a tax effective agricultural type investment or managed investment scheme which offer full upfront tax deductions in return for investment returns into the future. Blue Gum projects have been popular over the years and most suppliers have history and strong track records. Other projects like almonds, olives and avocados are currently in vogue and offer diversity. Should you be considering any MIS's , it is essential that you look at it on the basis of the quality and merits of the investment first and foremost and any tax benefit should be seen as an added bonus. For further information, please contact Grant Hodgins - Director, Advantage One |
+ 61 8 8333 1944
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