Wealth Creation, Tax and 'EoFY'

This time of year gets a little crazy in the run up to the end of financial year. With the 30th June being the final date to maximise tax deductions in this current financial year it it time to start planning to ensure you get a good taxation outcome.

Here is my guide to reviewing your wealth creation plans in the run up to 'EoFY'!

Review your portfolio and capital gains / loss position

If you have any capital losses on the books or capital gains now maybe a good time to review the holdings and trim any profits.

Where your capital gains are more than your capital losses you may need to implement a strategy to manage your tax position before 30 June.

Boost any income deductions on your investments before end of financial year

If you have an investment property or share portfolio which has a loan attached it is a good time to review any upcoming costs and see if you can bring forward any income deductions to this current financial year.

This can include revisiting your loan amounts and interest rates (shop around for the best rate) and look to consolidate any property and share loans to reduce the interest you are paying while also boosting your deductions this financial year.

Prepay Income Protection insurance for the next 12 months to bring your deduction forward

If you have income protection insurance in place and you are paying month to month, now may be a good time to try and pay an annual premium amount to bring forward the deduction to this income year. Cash flow will be the key here, along with any debt optimisation you can being into play (see below for more details).

Prepay interest on a investment loan to enhance your deductions and increase your investment capital

If you have not invested in the past but always look at your group certificate and wonder where it all went now is the time to take action. Educate yourself, understand the investment products and strategies that are out there and most importantly get good fee for service advice.

Debt Optimisation is the key

The key to getting a good taxation outcome is that you use any tax returns wisely and by this I don't mean on a holiday or other personal expenses. If you have debt including your mortgage pay this non-deductible debt down first and use the taxation savings to optimise your overall position.

A small portfolio loan of $20,000 can result in a tax saving to you of up to $900 (depending on your tax rate). Even this small amount of additional repayment on your mortgage each year can reduce your borrowing term and overall interest payments.

On an average mortgage of $350,000 this additional amount each year could save 4 years off a 30 year loan and $45,000 interest.

If you need assistance in exploring these further talk to a professional but most importantly start your journey to being free around your money and creating wealth with understanding.

Scott Malcolm (scott@money-mechanics.com.au) is Director of Money Mechanics (ph: 6257 5557) a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.

The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.

Henry Tax Review - Is it Super?

This week the Federal Government released their response to the Henry Tax Review which was looking at the areas of Retirement Savings, Personal Taxation and Social Security. With an election looming there were not any major changes to the system at this stage but watch this space as the Federal Budget is released next week.

The Henry Tax Review was over 1000 pages long with 138 key recommendations the changes which the government has released are summarised as below:

• the superannuation guarantee (SG) rate will increase gradually from 9% to 12% from 1 July 2013
  
  
• the SG contribution age limit will increase from 70 to 75 from 1 July 2013
  
  
• a Government super contribution of up to $500 p.a. will be made for people earning up to $37,000 p.a. from 1 July 2012 to effectively refund contributions tax
  
  
• the Concessional Contribution cap will be reinstated to $50,000 p.a. from 1 July 2012 for people aged 50 or over with super balances below $500,000
  
  
• the company tax rate will gradually reduce to 28% by 1 July 2014 (and two years earlier for eligible small businesses)
  
  
• very generous depreciation rules will apply to small businesses from 1 July 2012
  
  
• a 40% Resource Super Profit Tax will be introduced from 1 July 2012

The Government has publicly rejected some recommendations which have some good implications while this government remains in term atleast:

Social Security

• The family home will NOT be included in the means testing;
• Parents will NOT be required to work when youngest child turns 4 to access benefits;
• Rent assistance eligibility will NOT be restricted;
• Age Pension indexation will NOT be reduced;
• Pensioner and low income concessions for utilities, transport and other essential services will NOT be reduced;
• State Governments will NOT be asked to change the market rent for public housing recipients.

Superannuation

• Preservation age and pension age will NOT be aligned;
• The Government will NOT offer an annuity income stream product.

Taxation

• Land Tax will NOT be introduced on the family home;
• No changes will be made to the taxation system to harm not-for-profit sector including removal of tax concessions;
• Capital Gains Tax discount will NOT be reduced;
• Medicare Levy will NOT be removed;
• Dividend imputation will NOT be removed;
• Bequests tax will NOT be introduced;
• Luxury car tax will NOT be abolished; and
• Fuel tax will NOT be indexed to CPI.

Other Comments

• Defence force personal will NOT have remuneration reduced;
• The Government also re-affirmed that it will never increase the rate or broaden the base of GST; and
• The Government also stated it would not remove tax free superannuation payments for individuals who are 60 or over.

My view it that we may see some other changes come through with the Governments final budget before the election campaign begins but being mindful of the election cycle I wouldn't image any major changes to the taxation system would come into the picture.

Watch this space as I will be keeping an eye out on the upcoming Budget and will provide a summary of any changes as they come to hand.

Scott Malcolm (scott@money-mechanics.com.au) is Director of Money Mechanics (ph: 6257 5557) a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.

The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs.Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.