EOFY last-minute tax planning strategies
Pre-pay investment loan interest
If you have some savings, then see if you can negotiate with your finance provider to pay interest on borrowings upfront for the investment property 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.
Bring forward expenses
Try to bring forward any other deductions such as the interest payments mentioned above into the 2020-21 year. If you know that next income year you will be earning less 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.
An exception will arise if you expect to earn more next financial year. In that case it may be to your advantage to delay any tax-deductible payments until next financial year, when the financial benefit of deductions could be greater.
Temporary full expensing
The temporary full expensing regime is now operable for depreciating assets acquired after 6 October 2020 and before 30 June 2023. 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 2023. Some exclusions apply. Passenger cars are excluded.
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 2023). 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 2023 tax years where there are assets you have been looking to acquire or improve.
Use the Capital Gains Tax (CGT) rules to your advantage
If you have made any capital gain from your investments this financial year, you may consider selling any investments on which you have a chance of making a loss before 30 June. Doing so means the gains you made on your investments can be offset against the losses, reducing your overall taxable income.
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.
Tread carefully and don’t let tax drive your investment decisions –check to determine whether this strategy will suit your circumstances, and whether you risk attracting the attention of the ATO in any way.
Expenses on 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 or maintenance or repainting, 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).
Above mentioned points are non-exhaustive list of strategies that can be used as an effective tax planning strategy. It may or may not apply to your personal circumstances. No consideration has been given to target audience’s personal circumstances whilst drafting this article.
It is prudent to seek professional advice before taking further action after reading this article. Expert Tax will not accept any liability arising because of relying on this article.
Contact Expert Tax on 0449 952 855 or 1300 869 829 for further assistance.