Tax time…10 end-of-year tips

It’s tax time again and there are a number of strategies you can consider to reduce your tax liability for 2011/12 and boost your tax refund.

1. Prepay your Private Health Insurance

The Government recently announced it would be restricting eligibility for the 30% private health insurance rebate from 1 July 2012. As a result, higher-income earners may find that their rebate decreases (or is eliminated altogether) from 1 July, meaning their premiums could increase by up to 30%. However, you can lock-in the 30% rebate for another 12 months by prepaying your policy before June 30. By doing this, you won’t only save on the cost of your insurance for 2012/13, but you’ll reduce your tax for 2012 too because the 30% rebate will be offset against your income this year.

2. Salary sacrifice to superannuation

If you are over 50, the 2011/12 financial year is the last opportunity you have to take advantage of the $50,000 concessional contribution cap. Concessional contributions include employer and salary sacrifice contributions and from 1 July, the cap will be reducing to $25,000 pa. Make salary sacrifice contributions to super before 30 June to reduce your assessable income and the amount of tax you pay.

3. Make a deductible contribution to super

If you are self-employed or are retired and under age 65, you may be eligible to make a tax-deductible contribution to your super fund. If you are over 50 there is additional incentive to do this because deductible contributions count as concessional contributions, so you have the $50,000 cap available until 30 June (reducing to $25,000 from 1 July). A tax-deductible contribution is offset against your income and will reduce your income tax liability for 2011/12.

4. Claim your medical expenses

If you have medical expenses exceeding the $2,000 threshold for 2011/12, you may be entitled to a 20% tax offset on the excess. Refer to your Medicare tax statement to work out what your medical expenses have been for the year.

5. Take advantage of the Government co-contribution scheme

You may be eligible to receive up to $1,000 as a co-contribution if you make a personal (after-tax) contribution to your super fund before 30 June 2012. If you make a $1,000 after-tax contribution to your fund and your assessable income is $31,920 or less, you may be eligible for an instant 100% return on your $1,000 investment! The Government will be changing the scheme from 1 July and reducing the maximum co-contribution to $500 and reducing the upper income threshold for eligibility. Act before 30 June to get your $1,000.

6. Delay capital gains

If you are thinking of selling an asset that will realise a capital gain (e.g. shares, property), consider delaying the sale until the new financial year. By doing this, the capital gain will be assessed next year and you could delay paying capital gains tax (CGT) on the sale until March 2014.

7. Use capital losses

If you have sold an asset and realised a capital gain this year, consider selling poor-performing assets to realise a capital loss before 30 June. The capital loss can be offset against the capital gain and if the loss exceeds the gain, you won’t pay any tax on the gain and you can carry the excess loss forward to future years.

8. Make a donation

Donations to charities are generally tax deductible and are another way to reduce your income tax bill for 2011/12.

9. Make a spouse contribution to super

If your spouse is not working or working part-time only, you may be eligible to receive a tax offset of $540 if you make a contribution to their superannuation fund. The full offset may be available if your spouse’s income for 2011/12 is $13,800 or less and you make a $3,000 after-tax contribution on their behalf.

10. Keep good records

To maximise your tax deductions, you should keep all receipts that relate to income-producing activities. Furthermore, if you kept a spread sheet over the course of the year, you could keep track of your deductions and manage your position more effectively in June. For instance, you’ll know the value of your deductions before the end of the year, so you can easily calculate whether you should ‘manufacture’ more deductions (e.g. donations, prepayment of work-related expenses) to optimise your tax position.