TAX NEWS - JUNE 2010

Tips to avoid paying more tax and grab a bigger tax refund - Australia Tax

- End of financial year 23 days away
- Act now to get strategies in place
- Tax savings can be made with easy steps

Investors have just 23 days to get their strategies in place to grab a handy tax refund for this financial year or reduce the pain of a hefty tax bill.

Australia's complex taxation system throws up plenty of potential for investors to maximise their benefits.

The key is knowing your options and acting early to avoid last-minute problems. Kathy Mazzachi, a partner at Kennedy & Co Chartered Accountants, says there are three key tax strategies:

- Deferring income until next financial year.
- Bringing deductions forward to this year.
- Using opportunities that arise each year.

"There can be tax saved by taking some very easy steps," Mazzachi says.


Property

Real estate investors always have a good chance to make tax time work for them.

While there is usually only one source of income for them rent the list of deductions is long, and includes interest costs, land tax, depreciation, property manager fees, council rates, maintenance costs and pest control.

Resi Mortgage Corporation head of consumer advocacy Lisa Montgomery says June can be a time for property investors to make minor repairs, and claim a tax deduction almost immediately.

Montgomery says some property investors might look at interest paid in advance.

"In basic terms, this is when a borrower pre-pays the next financial year's interest and claims it as a tax deduction in the current year," she says.

Depreciation schedules have been growing in popularity in recent years as a way for investors to squeeze every possible deduction out of their property.

Typically costing $500-$600, these are produced by quantity surveyors, who often guarantee the deductions they find for you will more than offset the cost of the schedule.

Terri Scheer Insurance general manager Carolyn Majda says landlords should speak to their accountant to confirm what they can and cannot claim as a tax deduction.

"Owners can usually claim the landlord insurance premium as a deduction, but this is sometimes overlooked," she says.


Shares

Capital gains tax can have a big impact on share investors. In the present market, capital losses can be used to offset gross capital gains on the sale of shares and other assets such as property.

However, selling a share to book a capital loss and then re-buying the same share known as a wash sale is seen by the Taxation Office as tax evasion, says Macquarie Private Wealth division director Paul Kirchner.

But it doesn't mean people can't sell poorly performing shares during June. Losses can be offset only against gains or can be carried forward to the next financial year.

"A number of people at this time of the year review their portfolios and clean out the stocks they are not happy with," Kirchner says.

Another June strategy can be pre-paying interest on margin loans and equity loans used to buy shares.

Tax planning can be tricky for managed-fund investors, who typically don't get told about the capital gains and income from their fund until after June 30.

"For example, international share funds in Asia have returned very lumpy capital gains in the past few years," he says.


Superannuation

Employees generally can't claim a tax deduction for their super contributions, although self-employed people and those who get most of their income from investments usually can.

A tax offset on super contributions is available to people who pay up to $3000 into the account of a low-income or non-working spouse, Mazzachi says.

"The maximum tax rebate allowed is $540," she says.

"To be eligible to claim the maximum tax offset, your spouse must be receiving income totalling $10,800 or less in a financial year. A reduced tax offset is available for spouses earning up to $13,800."

Many workers can take advantage of the government co-contribution, which matches dollar-for-dollar the first $1000 of after-tax contributions paid into super by low and middle-income workers.

Peter Burgess, technical director at the Self-Managed Super Fund Professionals Association of Australia, says to be eligible, at least 10 per cent of your income for the year must be from either work or carrying on a business.

"The maximum government co-contribution is payable for individuals on incomes at or below $31,920," he says.