July 28, 2012

Tax tips

Are your tax records are up to date? Do you know how to effectively reduce your taxable income? NAB Health’s John Minto shares some pointers.

Given taxes are one of your largest expenses, John Minto, National Manager for Financial Planning at NAB Health, shares some practical insights on how to best manage your taxable income.

Top Four Tips

There are four key areas that health professionals could take into account now to get their tax affairs in order for the next end of financial year. After all, by being organised, you could shave unnecessary expenses off your tax bill.

Tip 1. Bring forward deductible expenses and defer income

To reduce your taxable income this financial year, you could bring forward expenses that are otherwise tax deductible in the following financial year and defer income where possible. For example, you could consider pre-paying 12 months’ interest on a fixed rate investment loan. You could also look at carrying out maintenance to business or investment properties.

Another option: explore pre-paying 12 months’ income protection insurance premiums outside super before June 30, 2013 to pay less tax this financial year. You may also receive a discount on your insurance premium by paying 12 months in advance.

If you’re a small business entity, weigh up whether the time’s right to buy new equipment or machinery and use tax-effective asset finance solutions to minimise impact on your cash flow. For smaller purchases, make sure you write-off assets costing less than $1,000 rather than depreciate.

Small businesses can also look at deferring income and tax by delaying the issuing of invoices, for example.

It may also be worthwhile checking your list of debtors and deciding whether you should write-off any bad debts, as bad debts are generally tax deductible if written-off in the same income year that they’ve been included as assessable income.

Tip 2. Avoid excess superannuation contributions

Be aware of the consequences of contributing too much into super, as tax costs for making excess contributions can be enormous. While super is still a very tax-effective place to save for retirement, the benefits can be unwound if you put in too much.

Tip 3. Manage your capital gains tax

If you make a capital gain on the sale of an asset this financial year, you could consider selling a poorly performing investment before June 30, 2013. This can allow you to use the capital loss to offset your capital gain.

Alternatively, you may wish to delay any sale of profitable assets until after June 30, 2013. This way, you can defer paying tax on the capital gain for up to 12 months. And, if you expect to earn a lower taxable income next financial year, the capital gain may be taxed at a lower marginal rate.

If you’re self-employed, another option is to make a personal deductible super contribution with some or all of the sale proceeds. The tax deduction you claim could reduce, or even eliminate, your capital gains tax liability.

Tip 4: Do no financial harm

If you’re operating multiple tax structures, such as companies, self-managed super funds (SMSFs), service trusts, family trusts or other discretionary trusts, it’s important that you review their interactions to resolve any inefficiencies and maximise deductions available to you. In particular, rectify any unpaid present entitlements/debit loan accounts before June 30, 2013 to ensure your trust deeds allow income streaming among your family. Also check that your SMSF is updated and maximise all your service trust mark-ups to meet ATO guidelines.

While managing your finances and tax planning is required all year round, the June 30 deadline each year provides a time-critical wake-up call to get your house in order. As part of this review, consider rationalising your overall debt situation and assess re-financing options in light of falling interest rates. Personally, you need to ensure your finances are working harmoniously so that you’re converting your practice cash flow to personal wealth.

Note: the information in this article is meant as a general guide only. Consult your accountant of business adviser for a more thorough assessment of your taxation requirements.