There are still a number of ways that people can reduce their taxable income before the end of the financial year. For instance, if your spouse is on a lower tax rate, they should hold income-producing investments.
Other tips include:
A salary sacrifice arrangement can help reduce taxable income but must be put into place before the income is earned. Therefore you can only sacrifice income earned between the date that the agreement is entered into and 30 June.
Keep in mind that salary-sacrificing may create fringe benefits tax (FBT) consequences, and it may be better to keep paying the income tax on the full salary. This is because employers usually reduce the salary by the amount of the FBT payable on the arrangement, in addition to the amount that has been sacrificed.
Salary sacrifice arrangements are most advantageous when it involves items that are either concessionally taxed for FBT purposes (such as motor vehicles with high business usage) or exempt from FBT (such as laptop computers).
The income tax cuts promised in the lead-up to last November’s election could reduce the amount of tax payable on any income that is postponed to the 2009 financial year.
While most salary and wage earners will find it difficult to defer income, there are still options with investment income, such as having a term deposit mature in July rather than in June, or waiting until July to sell an asset that will result in a capital gain.
Also, bring forward deductions by paying deductible expenses in June rather than in July, for instance prepaying interest on a deductible loan or paying membership subscriptions of trade or professional bodies.
Legitimate deductions and tax rebates include:
*Charitable donations of $2 or more, as long as you have a receipt
*Some expenses relating to income production that have a service period of 12 months or less, i.e. building and contents insurance relating to income producing property
*The tax rebate of 20 percent for net medical expenses (including dental and optical) in excess of $1,500.
Managed investment schemes
There are still approved managed investment schemes (MIS) for those who wish to reduce their taxable income by using this style of investment, despite recent attention from the ATO.
Ensure that the MIS you are considering has a current product ruling issued by the ATO, and that the circumstances of the investment are in accordance with this ruling.
* Andrew Burns is a manager with accountants and business and financial advisers HLB Mann Judd Adelaide
The opinions expressed in this article are those of the author, and don’t necessarily reflect the opinions of DYNAMICBUSINESS.com or the publishers.