With the end of the financial year just around the corner, here are some essential tasks for every investor’s To Do list.
The aim is to take advantage of legitimate concessions and avoid the pitfalls created by our complex tax system. That way, you can be confident there will be no nasty surprises when your tax bill arrives, and can start the new financial year in good shape.
Give your portfolio a health check
The end of the financial year is a great time to review and rebalance your portfolio, ensuring you’re making the best possible use of your hard-earned cash. That means reconsidering your strategy and potentially selling under-performing assets, freeing up valuable capital.
If one investment has grown faster than another, it can also be a good idea to take profits now, to bring it back into line with your target asset allocation, and reallocate the cash to another asset.
In the process, you could generate both capital gains and capital losses, so think about the capital gains tax (CGT) impact before you act. When it comes to calculating your CGT bill, you can offset losses against gains, including unused losses from previous years. So if you have made a capital gain during the year and you’re planning to sell a loss-making investment in the near future, it may be worth selling before the financial year end.
Make the most of superannuation
With both pre-tax contributions and investment earnings taxed at just 15%, super is one of the most tax-effective ways to invest. But there are also caps on the contributions you can make each financial year, which means it can be important to take advantage of any unused contribution cap amounts before financial year end. This is particularly important if you’re aged 50 or over, because the cap on your pre-tax concessional contributions may decrease from $50,000 to $25,000 per financial year on 1 July 2012.
Start by reviewing your super contributions for the financial year.
Consider taking steps to make the most of your super, for example making additional contributions, but be very careful not to breach contribution caps. Breaching the caps can result in big tax penalties, so if you think you may have contributed too much, seek advice immediately.
Add up your deductions
If you’re earning income as an employee, you’re automatically entitled to claim work-related expenses up to $300 without having to show proof (set to increase to $500 from 1 July 2013). If you think you’ve spent more than that, it’s time to gather receipts for everything from travel to uniforms. If you’re not sure what you can claim check to see whether there is an Australian Taxation Office guide for your occupation.
As an investor, you may also be able to claim a range of deductions for investment expenses, especially if you have a rental property. That includes real estate agent management fees, repair and maintenance costs, interest and fees on investment loans, and certain financial adviser and accounting fees.