New thinking = New outcomes
It’s almost June 30, again – where there’ll be numerous articles on EOFY tips! Frankly, if you’re looking for these tips to maximise any form of tax benefits in 2018, then I can tell you that you’re 11 months too late. Why do I say this? Indulge me for a sec… “You work for 12 months and pay taxes as you go. After June 30, you book an appointment to see your Accountant, hoping - in fact - begging for him to get a sizeable refund. After which, you get ready to spend that money any which way you see fit”. I’m sure you’ll see your Accountant again in 12 months’ time. Can you see how backward thinking this is?
Now, flip this thinking on its head – enter a paradigm shift. How about looking at structures to free more capital and possibly get your tax benefits immediately? Will that be something you may be interested in?
Is it a Capital Gains Tax Affair or an Income Fling?
Ok! Calm down and don’t get too excited!! It’s tax we’re talking about, people! But on a more serious note, a forward-looking strategy can make a difference in your tax affair(s)! For instance, are you an investor or a trader? Should you buy a growth asset (Property or Shares) and hold for as long as it takes to make money? Or would you rather you turn that portfolio over to make money? Is it income or capital gain? These are important questions to ask as they’re directly linked to how your capital gains/losses and income are treated. Want to know more? Don’t wait till June 2019!? Have a chat with a qualified professional to know more.
What does this mean?
Depending on how you’re set up to trade, you could save yourself huge sums of capital gains tax whilst getting some deductible expenses against your income. In plain English, speak to a qualified Accountant and Financial Adviser for further details.
Low Interest environment – How to benefit from it!
We’ve been enjoying the benefits of having low mortgage rates. Of course, if you’re invested in cash, these periods would have presented some painful adjustments. The low interest rate environment should allow you to double your interest repayments on your investment loans. By doubling your interest repayments, you effectively reduce the time it’ll take to pay off the debt. I know! I know!! - rolling your eyes at the moment? However, there’s no point investing if the aim is to make a loss just to claim a deduction! The reason for your deductions is simple – you’ve borrowed money to generate an income.
What does this mean?
By paying almost double the interest costs on your loans, you effectively increase the cost of your borrowings to create a bigger deductible expense. Many lenders may allow you to pay your interest costs in advance. Just beware of the fixed rates, exit penalties if you break fixed rates and cashflow budgeting – make sure you can afford such an expense before you do it.
Income Protection Insurance
Yes! It’s that word again - Insurance! Have you ever thought, “Uh! I feel like I’ll have a car accident today”. Well…., like you, most people think they’re the best drivers out there and would never have an accident. Yet, every responsible adult pays for some form of car insurance – be it comprehensive or third party (in fact, don’t start me on that debate of having third party insurance when you have a comprehensive cover. Another day, perhaps?) Anyway, my point is, a $100k car will likely lose almost half of its value in 5 years. Conversely, a $100k income - at current inflationary rates - will likely be worth about $108k in the same period. So, what makes an educated person want to insure a car but not their income? What will happen to your $100k if you couldn’t work for a period of 5 years?
What does this mean?
Income protection insurance may be deductible against your income. You can pre-pay the premiums in some cases. Paying insurance premiums in advance is a great strategy. It is even more powerful if you have an unusually large income in that tax year – through the sale of assets or receiving bonuses – taking you into a different tax bracket. This strategy may help in minimising that impact. Be careful to seek advice and check your cashflow before doing that.
General Advice Disclaimer
“Things you should know: In preparing this material, no account was taken of the objectives, financial situation and needs of any particular person. Before making a decision on the basis of this material, you need to consider, with or without the assistance of a financial adviser, whether the material is appropriate in light of your individual needs and circumstances.”