5 scenarios where early tax planning is key
Many of us assume that tax planning is only necessary at the end of the year. It often stays on our to-do list but doesn’t become a priority. As 30 June approaches, clients send their information to accountants who rush to complete tax planning where possible.
However, effective tax planning should be an ongoing process and should start well before the year-end date. Tax advisors cannot change history, so it is always recommended to seek advice and implement strategies before it is too late.
Now is a perfect time to review your circumstances and finances, especially if you anticipate higher income than usual.
Is a property sale on the horizon?
If you plan to sell property, don’t wait until year-end to seek advice. Ask your tax advisor earlier to understand how much tax you will likely pay and whether any strategies can be implemented to optimise your overall tax position. For example, you can increase your tax deduction by making concessional contributions up to the annual cap.
If you have sufficient funds, you may go one step further to make catch-up super contributions by utilising the unused super cap accrued in previous years. Tax advisors can advise you on the pros and cons of different strategies and warn you of any hidden tax liabilities, such as Division 293 tax for high-income earners.
“Tax advisors cannot change history… Now is a perfect time to review your circumstances and finances, especially if you anticipate higher income than usual.”
Borrowing from your company?
Timing is critical for many tax transactions. Business owners with debit loans from their private company need to ensure that they have compliant Division 7A agreements in place before the lodgement of the company’s tax return, or a deemed dividend may apply.
Making downsizer super contributions?
Retirees wanting to make downsizer contributions must make the payment into their super fund within 90 days of receiving the proceeds of the sale; otherwise, the payment may not qualify as a downsizer super payment. See our article from this month on this topic: Is ‘downsizing’ worth it?
Gifting money to children?
By planning early, you can avoid unpleasant surprises. If you are on age pension and plan to gift money to your children, we suggest seeking advice on its implications for your age pension before gifting your money. If parents give a significant amount of money to their children, it could be considered a deprivation of assets, which could reduce their entitlement to the age pension.
Drawing down on a home loan?
If you have a mortgage and equity in your home, you may be considering drawing down on your home loan for various purposes. However, it’s essential to seek tax advice before doing so because the interest on the drawdown may only be deductible if it is linked to income-generating activities.
The bottom line
We are here to help you make informed decisions about your finances and explore alternative options. We can assess your current financial situation, business structure and review any changes in tax laws that may impact you.
Overall, early tax planning can provide you with greater financial stability and help you achieve your financial goals. By seeking advice from a tax professional, you can develop a comprehensive tax plan that meets your specific needs and ensures that you are well-prepared for the tax season.
Feel free to contact me if we can help you get started on your tax planning early this year!
IMPORTANT NOTICE
This blog post contains general information only and has been provided by Allworths without reference to your objectives, financial situation or needs. Allworths cannot guarantee the accuracy, completeness or timeliness of the information contained here. By making this information available to you, we are not providing professional advice or recommendations. Before acting on any of the information contained here, you should seek professional advice.
