As the end of the financial year looms, it seems sensible to minimise your taxable income. But that’s not necessarily the best idea. In fact, there’s a significant difference between minimising your income and managing it, according to Stafford Hamilton from Bank of Queensland Specialist. The trick is in the planning.
Your final opportunity to capture maximum tax deductions for the current fiscal year ends on 30 June 2015. Appropriate structured financial products, selected in conjunction with tax advice from an accountant or financial advisor, may be the best approach for eye health professionals to do this, according to Stafford Hamilton from Bank of Queensland Specialist.
“If you are on the simplified tax system with less than AU$2 million in revenue, you may be entitled to make 12 months of advance payments if the lease was established within the previous 12 months, and effectively reduce your taxable income,” said Mr. Hamilton. “There may be real benefits in making tax deductions now, as money is generally worth more now than it will be worth in the future.”
A practice owner who wants to take out a loan to buy some stock, then immediately pre-pay the interest on that loan could consider a range of products available to them. “In this particular example, an unsecured product, or one secured against the practice, or against commercial property or residential property could be considered,” said Mr. Hamilton.
He said while a strategic approach to managing income can pay dividends, it’s important to plan. “A strategic approach means investigating which costs you can prepay, such as leases on equipment, interest on loans and any other expenses you might like to pay that relate to the coming financial year.”
It’s a strategy that doesn’t just apply to practice owners. “When it comes to employees, or those that don’t have large practices, prepaying investment properties or car loans, or interest on any commercial property they can prepay may be worth considering,” he said. “And don’t forget superannuation – depending on your circumstances, you may not have used this year’s allowance for concessional contributions to super.”
To take advantage of these strategies typically requires access to cash. For some, that may be difficult, however Mr. Hamilton said, it may be beneficial to consider taking on a debt, then paying it back over the next six or twelve months.
“Some people do find that idea a bit weird – taking on debt in order to pay down debt, but we often see clients adopt this strategy so they can prepay some loans to gain the tax advantages,” said Mr. Hamilton. “If you’re looking at a big tax bill and you can manage that liability forward a year, that’s an extra 12 months you can hang on to your tax money.”
An alternative to taking on an overdraft may be to use your credit card for purchases, which, he said, can have a similar effect of spacing repayments across the financial year. “Of course there might be expenses associated with that strategy, but they may be balanced out if your card offers generous incentives such as frequent flyer points for eligible spend.”
Time to Go Shopping?
If you’re not concerned about cash flow, it may be that you can take advantage of the ubiquitous end-of-financial-year sales to do a bit of shopping. “This is often the best time of year to buy a new car, for example, for which there are commonly concessions,” said Mr. Hamilton. “With cars it may be that you can claim some deductions even if you buy the car on the 28 June and therefore you’ve only owned it for two days. If you finance and prepay a lease, you might realise AU$10-to-$15k worth of deductions.”
Opportunities also exist for those who own a larger practice, including purchasing equipment on a lease agreement and prepaying twelve months in advance: “For a $100k purchase you might get $24k+ worth of deductions almost immediately on a well-structured lease agreement,” Mr. Hamilton explained. “And further benefits come into play with interest rate reductions: prepaying a lease may mean a one or two per cent saving on the effective interest rate which can result in a significant benefit.
“Many financial institutions will allow you to prepay interest on property, but not all of them will, so if your property loan is with a lender who doesn’t, you may want to investigate refinancing – which brings us back to the issue of planning ahead. If you are looking to refinance your property, planning ahead will help. It is well worth speaking to a financial consultant as early as possible.”
In general, Mr. Hamilton said, “We say to people every year, plan early because until you have an idea of what your income may be, it’s very hard to do any planning to manage your income.”
BOQ Specialist can be contacted on (AUS) 1300 131 141
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