The new financial year is a great time for Australians to reassess their financial position and look for any tax benefits they qualify for, according to HLB Mann Judd tax partner Peter Bembrick.
One of the first things we should do is review deductible and non-deductible debt.
“Having high levels of non-deductible debt – such as a mortgage, a car loan or a credit card – is a disadvantage as no tax deduction can be claimed on the interest payments,” Mr Bembrick said.
Paying down this kind of debt should be a priority and any spare funds should be used to do so as quickly as possible, he said.
“Deductible debt on the other hand – such as the interest on a loan over an investment property or a share market portfolio – can be claimed as a tax deduction and should be paid off only after the non-deductible debt has been eliminated,” Mr Bembrick said.
Those looking to maximise their cash flow should consider having an interest-only loan over all their income generating investments, all the while making principal repayments on non-deductible debts such as a home loan.
“However, care must be taken when restructuring loans solely to avoid tax, as this can attract the attention of the Australian Taxation Office,” Mr Bembrick cautioned.
The types of investments being held is also an important consideration for those concerned with their tax liabilities. Tax-advantaged investments should always be considered, so long as they meet an individual’s long-term investment plan.
“No investment should be taken out purely because it receives favourable tax treatment, but by the same token, it is important to be aware of the taxation implications of the investment structure,” Mr Bembrick said.
“For instance, selecting an investment that returns discount capital gains or fully franked dividend income is a better option than choosing an investment that may offer the same return, but doesn’t have the same tax advantages.
“For individuals, family trusts and super funds, listed investment company dividends are often an attractive, tax-effective option as they are usually fully franked. They also come with the benefit of the CGT discount which shareholders can access if the company sells investment assets.”
Mr Bembrick said superannuation is another facet that warrants review, and super members should make sure their fund’s underlying investments and strategy are appropriate and overall performance will meet individual retirement goals and timelines.
“Undertaking a super fund review is a useful exercise, and people should look at the fees being charged, the type of investments the fund holds and whether the level of investment risk taken is appropriate for their needs,” he said.
Making voluntary contributions is one tax-effective technique fund members can use to improve their super savings, as long as these contributions remain within the mandated limits, Mr Bembrick said.
“It is always worth knowing what other funds are in the market, what they charge in fees and the type of investments they make,” he added
“As the superannuation balance grows, it may also be worthwhile to consider whether a self-managed superannuation fund is a good option.”