Tax smart strategies for year end

By Nick Moustacas
Strategic Wealth Management

Here are a few strategies used by some of Australia's wealthiest as the end of the financial year approaches. Before implementing any of these strategies you should seek advice from your accountant or financial adviser.

Strategy 1 - Realise capital losses to reduce capital gains tax

If you have to pay capital gains tax (CGT) this financial year, you should consider selling poor performing assets that no longer suit your circumstances before 30 June 2006. By using this strategy, you could save on CGT this financial year and free-up money for more suitable investment opportunities. Should you wish to keep the loss asset you may consider selling the asset to a related party at market value. i.e. Self Managed Super Fund

By selling a poor performing asset, you can use the capital loss you incur to offset a realised capital gain from another asset in the same financial year.

* Be aware that any arrangement entered into with the dominant purpose to obtain a tax benefit may incur the wrath of the ATO and invoke the anti avoidance provisions in Part IVA.

Strategy 2 - Pre-pay 12 months interest on an investment loan

Borrowing to invest can help you achieve your long term lifestyle and financial goals. However, if you have already commenced a gearing strategy (or you’re about to set one up) then pre-paying your interest bill for up to 12 months before 30 June 2006 may enable you to bring forward your tax deduction and pay less income tax this financial year.

Bring forward your tax deduction
If you take out a fixed rate investment loan and pre-pay up to 12 months interest before 30 June, you can bring forward an expense that otherwise would be tax-deductible in the following financial year. This is despite the fact the majority of the interest payment may relate to servicing your loan after 30 June 2006.

Pay less income tax this financial year
This additional tax deduction could help you to reduce your taxable income and result in some significant tax savings this financial year.

If you have sufficient equity then you could fund this prepayment of interest by drawing on another loan.

If you currently have a line of credit you may consider converting this line of credit to an interest only facility and prepay 12 months interest in advance. You may also consider prepaying the following:

• Income protection insurance
• Council Rates
• Water Rates
• Body Corporate and Strata fees

Strategy 3 - Depreciation Schedule

If you are a property owner ensure you have assessed the viability of having a depreciation schedule prepared by a qualified quantity surveyor. This could add thousands of dollars in deductions for your rental property.

Get Educated

These are a few of the many strategies that people in the know use every year to increase the after tax income. With the right structure and the right strategies you can buy more property more quickly and also protect your assets from any nasty unforeseen events.

The best way to get educated is to attend the Reno King's Property to the Max 2 Day Workshop. Along with tax, issues like finance, legals, research, property management, development, town planning, renovations, negotiation and much more are covered by passionate and successful property investors who are leaders in their field.

Spend 2 full days with the Reno Kings and short cut your way to building the property portfolio you aim for. Why make all the mistakes and learn the hard way. Cut years off the process and get it right now.

For more information on this event click here