Tax Planning - Smart Moves & Red Flags to Avoid
The end of the financial year is a great time to cut down your tax bill with some smart tax planning. It’s not just about staying on top of things, it can actually give you an edge. Here are some clever strategies, plus a few key risks to avoid.
INDIVIDUALS
Actionable Opportunities
- Start by topping up your super smartly. If you haven't hit your concessional cap, consider salary sacrificing or making a personal deductible contribution.
- Prepay deductible expenses where eligible. Think interest on investment loans, income protection insurance, or even accountant fees, assuming you qualify under the 12-month rule.
- Capital gains timing is another useful strategy. If you’ve sold assets at a profit, consider realising capital losses to offset them. Just don’t sell and repurchase the same asset, as that’s a wash sale.
- Charitable giving with receipts is also helpful. Donations over $2 to deductible gift recipients (DGRs) are tax deductible, provided you keep the paperwork.
Risks to Watch
- Rental property deductions are under scrutiny. The ATO is focused on over-claimed deductions, especially for interest on redraws or mixed-use loans.
- Crypto tax obligations should not be ignored. If you've sold or swapped crypto, it’s likely a CGT event, and the ATO tracks wallet activity.
- Finally, don’t assume children’s education costs are deductible. Even if paid through a family trust, these expenses are not deductible, a trap that catches many high-income families.
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BUSINESSES
Actionable Opportunities
- Review asset purchases for instant write-offs. If you’re under the small business threshold, the temporary full expensing provisions might still apply. Buying needed equipment before June 30 could create significant deductions.
- Write off bad debts now. If a debt is unrecoverable, formally writing it off before year-end means you can claim a tax deduction.
- Consider deferring income strategically. If cash flow allows and income recognition can be deferred, such as delaying invoicing until July, it can help reduce this year’s taxable income.
- Maximise super contributions. Salary-sacrifice contributions for directors and owners are still one of the few ways to shift profit into a lower-tax environment, as long as they stay within the concessional cap.
Risks to Watch
- Be cautious of prepayment traps. Prepaying expenses can be useful, but only if you qualify for the 12-month rule. Otherwise, you risk only being able to claim part of it now.
- Avoid overusing trust distributions. The ATO is cracking down on circular arrangements and "unpaid entitlements" to adult children. Keep distributions clear, clean, and well-documented.
- Be aware of dividend franking dangers. Companies must have sufficient franking credits to match any dividends declared. Over-franking leads to penalties and shareholder disappointment.
