Updated: May 21
As we approach the end of the financial year 2023, there are a number of smart strategies you can implement to legitimately reduce your tax liability.
In the run-up to the end of the financial year, many of my conversations turn to tax planning.
Here's what you shouldn't do for a tax deduction
Borrow to invest in something just for the negative gearing
Throw cash into superannuation without a contribution strategy, investment strategy, or making sure it matches your short, medium, and long term goals
Businesses owners buying stuff they don't need (like a new car) so they can "write it off"
𝗬𝗼𝘂 𝗺𝗶𝗴𝗵𝘁 𝗳𝗲𝗲𝗹 𝗹𝗶𝗸𝗲 𝘆𝗼𝘂'𝗿𝗲 𝗯𝗲𝗮𝘁𝗶𝗻𝗴 𝘁𝗵𝗲 𝘀𝘆𝘀𝘁𝗲𝗺 𝘁𝗵𝗶𝘀 𝘆𝗲𝗮𝗿, 𝗯𝘂𝘁 𝗶𝗻 𝘁𝗵𝗲 𝗹𝗼𝗻𝗴 𝗿𝘂𝗻, 𝘆𝗼𝘂'𝗹𝗹 𝗹𝗼𝘀𝗲.
Tax planning is part of financial advice.
BUT it is not the most important part of financial advice, nor where you will obtain the 𝗺𝗼𝘀𝘁 𝗯𝗲𝗻𝗲𝗳𝗶𝘁.
Here are 6 ways to legitimately reduce tax in 2023:
Insurance premiums - Some insurance premiums, such as those for income protection insurance, are generally tax deductible as the proceeds in the event of a claim are taxable to you.
Work-related expenses - Don’t forget to keep any receipts for work-related expenses such as uniforms, training courses and learning materials, as these may be deductible for tax purposes.
Prepay investment loan interest - If you have an investment loan, you can prepay up to 12-months’ interest in advance. You may be able to claim a tax deduction for the prepayment in this financial year (subject to the relevant prepayment rules), further reducing your taxable income. This may work well if your total taxable income is going to be lower in the next financial year. Consult your tax agent to learn more.
Tax deductions for investment expenses - Expenses you incur while earning assessable investment income may be tax deductible. These expenses may include account-keeping and management fees and interest payments on investment loans. Claiming a tax deduction for these expenses could reduce your taxable income for the financial year, although not all expenses are immediately deductible. Your tax agent can help you determine what can be claimed.
Review ownership structure of investments - Transferring the ownership of your investments to your self-managed super fund (conditions apply) or to your spouse, if they are on a lower marginal tax rate, may reduce the tax you pay on future investment income and capital gains. However, these transfers may have capital gains tax (CGT) implications so you should seek qualified tax and legal advice before proceeding.
Managing capital gains - It’s important to assess if you have made any capital gains or losses from your investments. The most common way you realise a capital gain (or capital loss) is by selling assets such as property, shares or managed fund investments. Managed funds also distribute capital gains which you must report in your tax return. The Australian CGT system is quite complex so it’s important to consult with your tax agent.
Timing is everything
Some of these strategies can take time to plan and implement. So stay ahead of the curve and get in touch with your tax agent or accountant soon to find out how you can reduce your tax bill in 2023.
What you need to know
This information is provided by Lush Wealth Financial Planning Advice Newcastle and Sydney. Online Australia wide.
The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Join the club of Aussies who have their finances sorted, get in touch today!