End of Year Tax Tips for Doctors

May 19th, 2013

The end of the tax year is edging closer.  If you haven’t planned how you will maximize your income and save some tax, take note! The most effective strategies are often the simplest and can be applied before 30 June this year whilst others should be considered for next year. Here are both categories to consider:

Pre 30 June

• Defer non-essential income until the new financial year.
• Review your investment portfolio prior to 30 June to determine whether investments should be sold to offset any capital gains or losses made throughout the year.
• Ensure you get capital gains tax concessions by holding assets for more than 12 months.
• If your business is a Small Business Entity (turnover less than $2 million), then from 1 July 2012 depreciating assets (including motor vehicles) valued at less than $6,500 will be immediately deductible
• Maximise tax deductions through super contributions.  Alternatively, make a contribution into super for your spouse – this could provide you with a tax offset.
• If your marginal tax rate is more than 15%, salary sacrifice can be a great way to boost your superannuation and pay less tax.
• Borrow to invest through home equity loans, margin lending or protected equity loans and pre-pay the interest.
• Ensure you review income distributions from family trusts.  You can lose franking credits in some circumstances if a family trust election is not made.
• “Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. Loan Interest, Rent, subscriptions) BEFORE 30 June 2013 and obtain a full tax deduction in the 2013 financial year.
• 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

Next year

• Make sure you hold assets in the most appropriate tax structure.  Individuals, companies, trusts and super funds are all taxed differently on their capital gains and income.
• Use franking credits to reduce tax on lower taxed entities like super funds and lower income earners.  Remember that excess franking credits are refundable.
• Income split wherever possible to take advantage of the progressive tax system.
• If you have an investment property, a Property Depreciation Report (prepared by a Quantity Surveyor) will allow you to claim depreciation and capital works deductions on capital items within the property.

Take care with “tax-effective” investments

The golden rule when considering any investment is to focus on the quality and prospects of the assets and treat any tax advantage as a bonus.  The message in some end-of-year product marketing is that the tax deductions are all that matter.

The long-term prospects of some of these “tax-effective” schemes are uncertain.  The investments are usually illiquid and can have extremely high fees.  Remember that over time a good investment will be much more valuable than a tax break this year.

In an ever-changing and complex world, seeking professional advice can help you through the maze. We invite you to contact us to explore your individual tax planning opportunities further… but please don’t leave it until the last minute.