Top 8 Tips for Year End Investment Planning
Year end investment planning for the end of financial year (EOFY) is a crucial stage as an SMSF investor, as many actions MUST be completed or reviewed before 30 June!!
Here are 8 actions for year end investment planning to set-up well for the end of financial year.
1. Review Portfolio
Review the assets held against your investment strategy and goals.
2. Consider how your investments are structured
When purchasing an investment, it is important to get advice and consider how the investment is owned. Common structures include individual ownership and joint ownership, however structures such as Super, discretionary (family) Trusts and Companies are often miss-used or ignored.
Consider – the type of investment, the expected return, the expected size of the investment and also the end goal of the investment before deciding on a structure, as how an investment is owned can have a big impact on how it is taxed both now and into the future.
3. Capital Gains offset by concessional contributions
If you have made a capital gain, you may be able to reduce how much CGT you will have to pay (or more precisely, how much tax you have to pay for the entire year) by making concessional contributions. For example, if you have made a capital gain of $50,000 (reduced to $25,000 for assets held longer than a year for individuals), then a concessional contribution (CC) will generally reduce your taxable income and might allow you to pay less tax on your capital gain, particularly if it impacts on your marginal tax rate. But, in any case, a $10,000 CC could save your tax return of up $4700, while you’ll pay a maximum of 23.5% on the capital gain itself.
4. Capital Loss & Gains – solidify before 30 June
You could also consider disposing of investments that have experienced a capital loss which is not recovering and/or does not fit in your portfolio anymore. This loss can be used to offset any capital gains you have realised this financial year.
5. Capital gains tax relief in pension mode in SMSF
If you had more than $1.6m in pension or transition-to-retirement pension on 30/6/17, then you were able to potentially take advantage of the CGT relief provisions when selling down assets to meet the Cap., to soften the blow of the new transfer benefit cap (TBC), of $1.6m.
Those decisions need to be made soon, if they have not been made yet, before 30 June.
Note – The action required is rarely portfolio-wide, but should be made asset by asset. There will be assets in most portfolios where you want to apply for the CGT relief, while other assets (potentially, where you’re sitting on losses) where you don’t want the CGT relief, so that you can use a future CGT loss to offset other gains.
It is a complex decision-making process, which might go down to evaluating each parcel of a particular share that you bought over an extended period. Don’t leave this complex work until too close to the deadline – sit down with your adviser and/or accountant to work through this process, sooner rather than later. See Here, left menu 4th item down.
6. Bring-forward deductions/expenses
Bringing forward deductions is a great way to reduce your tax liability for the current financial year. Examples of this are investment subscriptions, pre-paying interest payments on investment loans or paying an annual premium payment for your Income Protection cover.
7. Defer taxable income
If possible, deferring income until after the 1st of July can be a useful strategy. This could involve delaying the sale of an asset or considering when fixed term investments will mature.
8. Property Investments
(a) Interest that is part private – ideal way is to have a separate loan for the investment and private portion to save more work at tax time.
(b) Conveyancing and purchase costs are not deductible, they are part of the cost base for capital gains tax purposes.
(c) Do minor repairs that can be immediately written off before they become major and possible capital repairs and need to be depreciated – eg we had a tap that come loose at the based, and a small water leak had developed under the sink. The water travelled to the downstairs study, and took weeks to show by a small stain in the roof plaster in the study. The tenant took weeks to tell us. We thought it was the shower in the ensuite directly above, but the plumber later found it was the powder room sink tap! Renovating the shower would costs several thousand – which was considered capital expense, fixing the tap, and roof plaster was directly deductable.
(d) Rental property visit costs – are no-longer claimable from 1/7/17 tax years onwards.
(e) Delay large item purchasing, as they are generally depreciated, not immediately deductible – like a new oven, hot water systems etc.
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