IN the lead up to the end of each financial year, a glut of 'tax-effective' investment products and schemes tend to emerge which urge investors to take advantage of tax benefits offered, and which may help to reduce investors' annual tax liability.
However, as any investment planner worth their salt will tell you, investment decisions should not be based on tax benefits alone.
Spending a dollar to save 50c is not a sound reason to invest. Whether the investment is appropriate in terms of its ability to help achieve long-term goals, and the existence of an ATO product ruling, (where applicable), are important consideration prior to investment.
Nevertheless, in preparing for tax time, many investors might be better served by looking in their own investment backyard rather than looking for additional investments.
By undertaking some standard investment house-keeping, investors can ensure maximum advantage is taken of the opportunities that already exist within current investment arrangements, including:
pSelling investments that have losses to offset any capital gains that may have been realised and reduce this year's tax liability.
pDeferring until after 30 June, the realisation of capital gains where possible and defer the tax payable until the following year.
pEnsuring any investments you intend to sell have been held for more than 12 months in order to qualify for a 50pc Capital Gains Tax discount.
pPrepaying interest on geared investment loans, eg margin/protected loans and bring forward the tax deduction to this year.
For those likely to be confronting a large tax liability and who have, or are looking to put in place, appropriate superannuation arrangements, it may be worthwhile:
pMaximising tax-deductible super' contributions. Self-employed persons can claim deductions for their personal superannuation contributions of up to $3,000 plus 75pc of any excess over that amount.
There are limits, based on the age of the person.
pEarning a tax rebate of up to $540 each year by making superannuation contributions on behalf of a low income or non-working spouse.
pReviewing personal insurance arrangements in light of tax deductibility within super'.
In some cases, this strategy can significantly reduce insurance premiums.
pTransferring an asset(s) into a super' fund. Whilst this may trigger a capital gains tax event initially, investment income thereafter will be taxed at only 15pc as opposed to your personal marginal tax rate which could be as high at 48.5pc.
If the asset transfer is treated as a super' contribution, then it may also be tax deductible.
For those serious about building long-term wealth, combining tax management with wealth creation should not be restricted to tax time. The process can be complex and it is advisable that professional help is sought.
pIan Clarke is an Investment Advisor with Macquarie and a qualified Chartered Accountant. He is well known throughout Western Australia as the daily stock market commentator on Liam Bartlett's daily Morning Program on ABC Radio. Ian can be contacted on 1800 199 019.