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End of Financial Year Strategies and Smart Ways to Invest Your Refund

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As the end of the financial year approaches, it’s crucial for all Australians to review their tax strategies and make the most of their tax refunds. At Tanti Financial Services, we understand that navigating the complex world of tax can be overwhelming. That’s why we’ve created this comprehensive guide to help you optimise your tax return, save money, and invest your refund wisely.

Whether you’re an individual, sole trader, or business owner, there are numerous opportunities to reduce your tax liability and boost your financial position. By planning ahead and seeking professional advice, you can ensure that you’re taking full advantage of the tax deductions and strategies available to you.

End of Financial Year Tax Tips

The most effective tax strategies are often the simplest and can be applied before 30 June, while others should be considered for the following financial year. Here are some tips from both categories:

Pre-30 June Strategies

  • Defer non-essential income until the new financial year: If you have the flexibility to delay invoicing or receiving payments, consider pushing some income into the next financial year. This can help you manage your tax bracket and potentially reduce your tax liability for the current year.
  • Review your investment portfolio to determine whether investments should be sold to offset any capital gains or losses made throughout the year: By strategically selling assets, you can minimise your capital gains tax and optimise your overall tax position.
  • Ensure you are eligible for capital gains tax concessions by holding assets for more than 12 months: Assets held for more than 12 months may be eligible for a 50% capital gains tax discount, significantly reducing your tax liability on any profits made from the sale of these assets.
  • Maximise tax deductions through super contributions or make a contribution into super for your spouse to potentially provide you with a tax offset: Contributing to your own superannuation or making a contribution for your spouse can not only boost your retirement savings but also provide valuable tax deductions or offsets.
  • Prepay next year’s interest on investment property, margin loans, or protected equity loans, and claim the deduction this year: By prepaying interest on investment-related loans, you can bring forward deductions and reduce your taxable income for the current financial year.
  • Review income distributions from family trusts to avoid losing franking credits: Ensuring that family trust elections are made correctly can help you maximise the benefits of franking credits and avoid losing out on these valuable tax offsets.

Strategies for the Next Financial Year

  • Hold assets in the most appropriate tax structure (individuals, companies, trusts, or super funds) as they are taxed differently on capital gains and income: Different tax structures offer varying levels of flexibility and tax efficiency. By holding assets in the most suitable structure for your circumstances, you can optimise your tax position and maximise your investment returns.
  • Use franking credits to reduce tax on lower taxed entities like super funds and lower income earners, remembering that excess franking credits are refundable: Franking credits can be a powerful tool for reducing tax liabilities, particularly for lower-income earners and superannuation funds. Ensuring that you allocate franking credits effectively can help you minimise your tax burden and even receive a refund for excess credits.
  • Split income wherever possible to take advantage of the progressive tax system: Australia’s progressive tax system means that the more you earn, the higher your marginal tax rate. By splitting income with family members (e.g., through a family trust or partnership), you can potentially reduce your overall tax liability and take advantage of lower tax brackets.

Investing Your Tax Refund Wisely

If you’re one of the lucky Australians receiving a substantial tax refund, it’s essential to consider investing it rather than spending it all at once. Here are some smart options:

Reduce Your Mortgage

By paying your refund directly into your mortgage, you immediately acquire more equity in your home and reduce interest. This equity can be re-borrowed for investments, gearing, or purchasing other assets.

Paying down your mortgage with your tax refund can have a significant long-term impact on your financial well-being. Not only does it reduce the amount of interest you pay over the life of your loan, but it also frees up additional cashflow that can be used for other investments or lifestyle goals.

Furthermore, having more equity in your home can provide greater financial flexibility, as you may be able to access this equity for future investments or opportunities. This can be particularly advantageous if you’re looking to build a property portfolio or invest in other asset classes.

Set Up a Regular Investment Plan

Invest the lump sum and set up a regular savings investment plan to meet future objectives such as a new home, education, or car. While a certain amount of money in the bank is helpful for emergencies, consider investing in assets such as property or shares through managed funds.

Setting up a regular investment plan with your tax refund can be a smart way to build long-term wealth. By consistently investing small amounts over time, you can take advantage of the power of compound returns and potentially achieve significant growth in your portfolio.

When choosing investments, it’s essential to consider your risk tolerance, investment horizon, and financial goals. Diversifying your investments across different asset classes, such as property, shares, and fixed income, can help spread risk and optimise your returns.

Boost Your Superannuation

Superannuation funds are the most tax-effective haven for growing your investments, with contributions taxed at only 15% on income less than $250,000 per annum. Although funds are usually not accessible until retirement, the law of compounding makes superannuation an excellent long-term investment.

Contributing your tax refund to your superannuation can be a powerful way to boost your retirement savings. By sacrificing some short-term gratification, you can potentially secure a more comfortable lifestyle in your golden years.

In addition to the concessional tax treatment of superannuation contributions, your super fund’s investment returns are also taxed at a lower rate than most other investments. This means that your money can grow more quickly inside super, allowing you to build a larger nest egg for retirement.

Seek Professional Advice

In an ever-changing and complex world, seeking professional advice can help you navigate the tax maze and make the most of your refund. At Tanti Financial Services, our team of experienced accountants, mortgage brokers, and financial planners work together under one roof to provide you with tailored solutions for your financial well-being.

Our holistic approach to financial advice means that we consider every aspect of your financial life when making recommendations. By understanding your unique circumstances, goals, and aspirations, we can help you develop a comprehensive strategy that optimises your tax position, maximises your investment returns, and secures your financial future.

Whether you need assistance with tax planning, investment advice, superannuation strategies, or debt management, our team has the expertise and experience to guide you through the process. We pride ourselves on our personalised service and commitment to helping our clients achieve their financial objectives.

By implementing effective tax strategies and investing your refund wisely, you can maximise your financial position and work towards your long-term goals. Remember to plan ahead, keep accurate records, and seek professional advice when needed.

At Tanti Financial Services, we’re here to help you every step of the way. Our team of qualified professionals is dedicated to providing you with the guidance and support you need to make informed financial decisions and achieve your dreams.

Don’t let another financial year pass by without taking control of your tax and investment strategies. Contact Tanti Financial Services today to explore your individual tax planning opportunities and make the most of your tax refund. Together, we can work towards building a brighter, more prosperous future for you and your loved ones.