As we rapidly approach the end of another financial year in Australia, it’s a great time to be looking at whether you should consider your options to reduce your tax liability at home. While we believe that everyone should pay the tax that they are liable for, we don’t expect anybody to have to pay any more than you should.
This week our team at Ally Wealth Management explores the considerations for both Australian expats and residents to think about before we reach the end of this financial year in Australia on June 30. We’ve broken it down into key categories for you so that you can easily identify the areas that are most relevant to you.
Australian property investors
Investing in property in Australia has been a strategy that many Australians find attached to both, increase their wealth and taking advantage of the tax benefits offered under our system of negative gearing. The key options to consider here are as follows:
Repairs and maintenance
Repairs and maintenance costs that you absorb as part of owning your investment property in a state that makes it possible to generate a rental income are generally tax-deductible. Depending on your personal circumstances, you may want to consider carrying out any maintenance work this financial year so bring the deduction forward from next year depending on your assessable income.
The end of the financial year can be a great chance to review both the interest and interest rate that you’re paying on your current loan/s. Chances are if your loan starts with a 3 or 4, you’re paying too much, and it could be possible to refinance and reduce your rates. It’s important to seek professional advice here to review all of your options and outline the pros and cons of the refinancing process.
You may wish to look at pre-paying up to 12 months of interest on your investment property mortgage prior to the end of this financial year, which would allow you to claim the full deduction now, rather than having to wait until next financial year. In order to pre-pay interest, speak to an investment-savvy mortgage broker and ensure that the strategy is right for you. They can work with you to lock in a reasonable rate for such a strategy and ensure that your bank will allow it.
This can also be a great opportunity to review the rental income that you’re receiving on your property or properties. When was the last time you or your property manager carried out a rental review on your property portfolio? This time of the year can be a great chance to review it and start exploring your options here to see if you can boost your income.
Shares, ETFs, and managed funds
Dividend and other passive income
Depending on your tax residency status will determine any tax liabilities on realised capital gains as well as dividends throughout the financial year. If you’re an Australian tax resident, then your capital gains and dividends will be subject to tax in Australia, so it’s important to review your options well in advance of the end of the financial year to explore what you can do to reduce your tax liability.
If you’re a tax resident elsewhere, it’s important to review the Double Tax Agreement (DTA) between the two countries if one exists. For example, Australian expats in Singapore who are not tax-residents of Australia would be subject to Capital Gains Tax (CGT) and tax on dividends in Singapore only, which would be nil.
Superannuation is one of, if not, the most efficient vehicles and strategies that those planning to spend their later years in Australia have for saving for their retirement. As such, whether you’re an Australian expat or resident, it’s important not to simply forget about it. Some of our tips here are as follows:
The concessional contribution, which is the amount that is paid into your superannuation account from funds that have not yet been taxed. For Australian residents, this is typically paid by your employer via payroll directly into your superannuation fund. For Australian expats, these contributions can, in many cases, be made on a voluntary basis into your Australian superannuation fund. The concessional contribution limit is currently A$25,000 per annum, and due to the indexation, this is proposed to increase to A$27,500 per annum from 1 July 2021.
If you’re an Australian expat, you may want to consider making a concessional contribution if you have other taxable Australian income such as rental from a positively geared property. Be sure to seek advice here from your accountant or tax (financial) Adviser to ensure that the strategy is right for you and you’ve explored your options.
Non-concessional contributions are those additions that you can voluntarily make into your superannuation fund from your after-tax funds. This is available to both Australian residents and expats with an Australian superannuation fund who can take advantage of the non-concessional contribution limit.
The current non-concessional contribution limit is A$100,000 per annum, which is proposed to increase to A$110,000 per annum from 1 July 2021. This also means that the amount that is contributed in one year with the ‘bring-forward provisions is expected to increase to A$330,000 from 1 July, from the current level of A$300,000. This could be a welcome boost for both Australian residents and expats seeking to boost their superannuation balance. If you’re getting closer to your retirement years as an Australian expat, you may want to consider lump sum contributions into your superannuation fund.
If your partner means the income threshold requirements here, then you could explore the option of contributing up to $3,000 into their superannuation fund and look to claim a tax offset of 18%.
Finally, the end of the financial year can be a great time to review your risk profile, either yourself or with a professional Financial Adviser. This includes assessing your overall asset allocation between growth and defensive assets, reviewing your goals and associated time frames, as well as your progress in achieving them.
This can be a great opportunity to reassure yourself that you’re on track or identify any changes that need to be made.
With just a few short weeks before we reach the end of the financial year, ensure that you’re speaking to your financial planner and accountant to start planning for the new financial year and ensure that you’re not missing out on opportunities available to you.
Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.
Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.
Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.
General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.