How to be EOFY ready

What are Australia’s wealthiest doing to prepare for tax-time?

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What are Australia’s high net-worth individuals doing to ensure they’re ready for tax-time? Preparations by some of NAB Private’s wealthiest clients give us some interesting insights.

As the end of financial year fast approaches, it’s evident our high net-worth clients are taking a number of steps to ensure they’re properly prepared.

So what’s on their top 5 list?

  1. Prepaying interest

Those with a fixed-rate loan are usually keen to pre-pay their interest for the next 12 months, before June 30. That’s because it allows them to claim their deductions this financial year. For that matter, expenses related to investment properties are also being prepaid where possible.

  1. Selling loss-making investments

Clients planning to sell a loss-making investment are doing so before June 30 to ensure it’s captured in their end of year finances. This way, they hope to offset any substantial capital gains – while still adhering to the Australian Tax Office’s rules.

  1. Neutralising large capital gains

Meanwhile, those clients planning to sell an investment with a large capital gain are holding off until July 1 – but only if it doesn’t detract from their investment strategy.

  1. Timely payment of bills

Many clients are making sure they’ve paid all their tax-deductible bills by June 30, including those related to rental properties and work-related expenses. This strategy is particularly useful when a client’s annual income is higher than usual, pushing them up into the next tax bracket.

At the same time, they’re making sure they claim everything they possibly can. This includes depreciating assets that haven’t been affected by the rule changes around property and travel (their tax adviser being the main source of advice here).

  1. A super strategy

Depending on their life stage, some clients are considering additional contributions to their superannuation fund. After all, contribution caps can only be carried forward in certain circumstances and it could well reduce their tax bill. Again, however, they’re making sure they speak with an appropriate adviser first.

Looking for new ideas

In general, the vast majority of our clients are using the time before June 30 to talk to their inner circle (whether that’s their private banker, financial adviser, accountant or lawyer) to see if there is anything else that can be done in the run up to the EOFY. It’s always worth seeing what’s new or how current circumstances might impact their finances going forward.

Beyond EOFY

Of course, our clients’ top five tips are just that – tips – so you should consider your particular circumstances and seek advice before taking any steps. Getting in early makes it easier to have broader conversations with your financial advisers, including your private banker.

“It’s a good time to review your overall portfolio and seek advice from an adviser, whether that’s your accountant, lawyer, financial adviser or banker,” says NAB Private Customer Executive Jason Murray.

“While it’s important to dot the i’s and cross the t’s in the run up to June 30, a longer-term focus can give you the opportunity to seek advice in areas like undervalued assets, responsible investing and estate planning.”

Meeting your deadline

For now, with the end of the financial year fast approaching, it’s best to act ASAP – certainly not leaving things until the final couple of days.

According to Murray, now is one of NAB Private’s busiest times of the year. “We find that in May/June there’s a flood of people drawing down, paying tax, pre-paying interest. And it’s amazing how many people will call on June 29. But the tax rules are pretty clear. If it isn’t paid by June 30, it’s not deductible.”

His safe advice: act now while there are still a few weeks to go.

Planning ahead

As Murray notes, a little bit of planning now can go far, changing your fortunes in the long run – whatever the size of your income. As experience has shown him, “income is not the highest correlate to end investment wealth.”

While most people focus their efforts on what he describes as their ‘active income’, they often ignore their passive income. “Little things, like planning for the end of financial year, pre-paying interest and so forth, they actually make a big difference over time.”