The financial year is almost over, but there are still effective strategies you may be able to put in place. The aim is to make sure you pay no more tax than you have to for
the 2020-21 year and maximise any refunds you may be entitled to. This is still the case, if not more so, in the on-going COVID-19 environment.
While the best strategies are adopted as early as possible in a financial year and not at the end, it’s worth remembering proper tax planning is more than just sourcing bigger and better deductions. The best tips involve assessing your current circumstances and planning your associated income and deductions from income year to income year. Not all of the following tips will suit everyone’s specific circumstances, but they should provide a list of possibilities that may get you thinking along the right track for your tax planning.
Temporary full expensing
The temporary full expensing regime is now operable
for depreciating assets acquired after 6 October 2020
and before 30 June 2022. The full cost of acquiring
depreciating assets is deductible in the year of income
in which the asset is first held, provided the item is first
used, or installed ready for use, by 30 June 2022.
The cost of improvements made to a depreciating
asset is also deductible in the year of income the
improvements are made (no later than 30 June 2022). In
contrast to the instant asset write-off rules, there is no
upper limit on the amount that can be fully deducted in
respect of any asset. This may enable some effective tax planning between the 2021 and 2022 tax years where there are assets you have been looking to acquire or improve.
Use the CGT rules to your advantage
If you have made and crystallised any capital gain from
your investments this financial year (which will be added
to your assessable income), think about selling any
investments on which you have made a loss before
30 June. Doing so means the gains you made on your
successful investments can be offset against the losses
from the less successful ones, reducing your overall
taxable income.
And while there may be many opportunities to realise
capital losses in the current circumstances, you should
be aware that the deliberate realisation of capital losses
for the purpose of reducing capital gains in some
circumstances may trigger a response from the ATO.
Keep in mind that for CGT purposes a capital gain
generally occurs on the date you sign a contract,
not when you settle on a property purchase or share
transaction. When you are making a large capital gain
toward the end of an income year, knowing which
financial year the gain will be attributed to can be a
handy tax planning advantage.
Of course, tread carefully and don’t let mere tax drive
your investment decisions – but check to determine
whether this strategy will suit your circumstances, and
whether you risk attracting the attention of the ATO in
any way.
Investment property
Expenses stemming from your rental property can
be claimed in full or in part, so, if possible, it can be
helpful to bring forward any expenses that can be
undertaken before June 30 and claim them in the
current financial year. If you know that your investment
property needs some repairs, some gutter clean up or
some tree lopping, for example, see if you can bring the
maintenance and (deductible) payments into the 2020-
21 year.
It should also be noted that deductible rental property
expenses remain deductible even if the property is not
rented as long as it is genuinely available for rent (which
is relevant in the current COVID-19 environment).
Pre-pay investment loan interest
If you have some spare cash, then see if you can
negotiate with your finance provider to pay interest
on borrowings upfront for the investment property or
margin loan on shares (or other loan types) and make
that deduction available this year. Most taxpayers can
claim a deduction for up to 12 months ahead. But
make sure your lender has allocated funds secured
against your property correctly, as a tax deduction is
generally only allowed against the finance costs incurred
for the purpose of earning assessable income from
investments.
Be aware that a deduction may not be available on
funds you redraw from a loan of this type that is put
to other purposes. Also, a component of the National
Rental Affordability Scheme payment is not assessable
income and therefore the deduction on these properties
may need to be apportioned.
Bring forward expenses / defer income
Try to bring forward any other deductions (like the
interest payments mentioned above) into the 2020-21
year. If for instance you know that next income year you
will be earning less (for example, due to maternity or
partner leave or going part-time), then you will be better
off bringing forward any deductible expenses into the
current year
