Investment strategies for end of financial year planning

About the author:

Terri Bradford
Author name:
By Terri Bradford
Job title:
Director, Wealth Management
Date posted:
23 June 2020, 3:45 PM

Have you reviewed your financial position before 30 June? Now is also a good time to start planning for next financial year. The following tips can be useful as you consider year-end planning strategies for your investment portfolio.

From a tax and investment perspective, depending on what is appropriate, it may be useful to defer income to the new financial year where possible, bring forward deductible expenses and minimise capital gains, if any. As always, speak to your accountant for specific tax advice.

Claiming all available tax deductions

Prepaying interest on an investment loan is a popular strategy as it brings forward 12 months' worth of deductions into the current financial year. It's also a practical strategy when considering your cashflow for the new financial year.

However, remember you are 'locking in' the interest rate for the next 12 months so if interest rates drop during the year you will not receive any reduction in rates. Similarly, if interest rates rise you will not have to pay a higher rate.

If you have been working from home due to COVID-19 conditions the ATO has set a flat rate of 80 cents per work hour for running costs (electricity, phone, internet, etc) for each day you are required to work from home.

Make sure you keep a diary or timesheet of your hours each day. If you have incurred expenses that are directly related to earning your income whilst working from home you may also be able to claim these expenses as a tax deduction.

We recommend you speak to your accountant to ensure you claim all available expenses during the COVID-19 period.

Franking credits

Investing in listed shares that pay 100% franked dividends is an effective income strategy used by many investors, particularly those on a low marginal tax rate.

The grossed-up value of franking credits provides a more tax-effective return than normal bank interest rates. Any surplus franking credits are refunded to the investor.

Capital gains and losses

It's worthwhile reviewing your personal investments (non-super) as you may want to clean out any "dead wood" in your portfolio, or to take advantage of the current market uncertainty. Or you may want to use the opportunity to re-align your portfolio so that it is in tune with your objectives for investing.

This includes considering your strategic asset allocation and rebalancing if necessary.

Losses can be carried forward (including from previous years); however, capital gains must be declared in year-end returns for the financial year the gain was made.

You may be eligible for a discount on any assessable capital gain if you have held the asset for more than 12 months.

Tip: Speak to your adviser to learn how you might be able to utilise contributions to super to help offset capital gains if you are eligible.

Share Purchase Plans and Rights Issues

Have you participated in share purchase plans this year as part of capital-raising strategies offered by listed companies? If you have purchased additional shares as a result, make sure you retain your records for cost base purposes.

You will need this information should you decide to sell the shares in the future.

Private companies and trusts

The key issues for those involved with private companies relate to the Division 7A rules. There have been changes to legislation relating to the use of company assets by shareholders, their family members and associated entities such as trusts.

There is also an ATO ruling that looks at treating withheld trust income as a loan back to the trust. This will apply where the income has been allocated to beneficiaries but no actual distribution has been paid.

If you have a family trust, trustees need to elect distributions from the trust to beneficiaries on or before 30 June 2020. The election must be in writing. It the election is made after 30 June, the ATO may disregard the distributions from the trust.

Find out more

Contact your Morgans adviser or your nearest Morgans office to discuss investment strategies that can assist with capital gains tax (CGT) management.

You are also welcome to start a two-week trial of our online platform, which provides access to detailed market analysis and insights, provided by our award-winning research team

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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