Tax has dominated public debate in the three weeks since Labor’s budget was handed down, and the controversy threatens to divert investors’ minds away from more pressing matters.
The financial year ends in one month, and there are several strategies and money moves that should be considered now to ensure the biggest possible refund for 2025-26.
H&R Block director of tax communications Mark Chapman said many investors had been panicking about Labor’s limited ban on negative gearing and its higher taxes on capital gains and trusts.
He said careful conversations were needed to calm down people who mistakenly believed the changes would apply from this year as most of the tax changes would apply from July 2027 and trusts from July 2028.
“It could easily deflect peoples’ attention from the more mundane end-of-financial-year planning that they do actually need to do pretty quickly,” Mr Chapman said.
Here are some key moves investors should consider now.
1. Act on gains and losses
Mr Chapman said the only part of existing share and property portfolios affected by Labor’s CGT changes would be the portion of gains arising after July 1, 2027. He said investors today should understand their capital gains position for the current financial year.
“Add up all realised gains from asset sales – shares, ETFs, managed funds, property, cryptocurrency, or any other CGT asset,” he said.
“If they have capital gains, they should be looking to examine the feasibility of disposing anything that’s currently sitting at a loss. If they do that they will generate a capital loss to offset against the capital gain, and hopefully that will improve their general tax position.”
However, don’t sell a share or other asset in June to crystallise a loss then re-buy it in July, because the ATO forbids these so-called “wash sales”, Mr Chapman said.
2. Super pump
Superannuation has become a more powerful destination to hold investments because of Labor’s plans to raise taxes on non-super investing, and Mr Chapman said now was the time to consider taking advantage of the $30,000 cap on concessional (tax-deductible) super contributions.
“Most people’s employers don’t pay that much into their superannuation fund, so there is potential for people to make a last-minute payment into their super fund to utilise that $30,000 and potentially utilise brought-forward unused contributions from previous years,” he said.
“If you have got some cash lying idle in a bank account, it could be worthwhile contributing that to super and claiming a tax deduction in your tax return.”
Chartered accountant and Mr Taxman founder Adrian Raftery said Labor’s tax changes “might be an extra incentive to put in more and build up super to purchase appreciating assets such as property and shares, as the proposed minimum 30 per cent CGT change is not applicable to them”.
But beware, don’t leave this strategy until the day before the end of the financial year. Super funds need to receive and process your money before June 30 and many have cut-off dates a week or two before the end of the month.
3. Prepay interest
Investors can claim tax deductions for interest paid on their rental property mortgages, margin loans and other investment debt, and can prepay next financial year’s interest too to potentially boost this year’s refund.
“If you are expecting that you will have a lower income next year – due to factors such as maternity leave, redundancy, a smaller or no bonus or perhaps cutbacks to overtime – then why not prepay interest for up to 12 months in advance and reduce your higher income this year?” Dr Raftery said.
4. Property spend-up
Real estate investors have several opportunities to make payments in June and claim a tax deduction for it.
Landlord insurance can be paid annually upfront, as can maintenance and repairs costs, and aim to pay other bills such as council rates where possible.
Dr Raftery said investors with properties built before July 1985 would find it worthwhile organising a depreciation schedule from a quantity surveyor.
“You should be able to recoup their fee in your first tax return as deductions can be in the thousands each year,” he said.
Since 2017 investors have only been able to claim depreciation on fixtures and fittings – such as carpets and curtains – on new builds. However, capital works deductions – typically 2.5 per cent of construction costs – can generally still be claimed annually for both established and new rental properties.
5. Business boost
If you want to invest more money into your own small business, now is the time to act.
“There have been some great tax concessions over the past few years for small business, with none greater than the immediate write-off available for the purchase of new business assets that cost less than $20,000,” Dr Raftery said.
“There is no limit to the amount of assets that you can purchase under this concession but beware that you are only getting a percentage back and your cashflow will suffer.
“If your business is registered for GST, the threshold is effectively $21,999 as you can claim the 10 per cent GST credit, up to $2000, and get an immediate write-off for the balance in this year’s tax.”
Labor made the $20,000 instant asset write-off permanent in the May budget. It applies to businesses with annual turnover below $10m.
Original article published here in The Australian.