Investment strategies for end of year planning

About the author:

Terri Bradford
Author name:
By Terri Bradford
Job title:
Head of Wealth Management
Date posted:
27 April 2021, 12:00 PM

From a tax and investment perspective, depending on what is appropriate, investors generally consider strategies that defer income to the new financial year, bring forward deductible expenses and minimise capital gains.

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 worked from home due to COVID-19 restrictions at any time during this financial year 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 up to 30 June 2021. 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 prefer to claim these actual expenses as a tax deduction rather than using the flat 80 cent rate. We recommend you speak to your accountant to work out which method best works for you.

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

Do you know the capital gains and/or losses position of your investment portfolio? Have you sold investments during this financial year that realised a capital gain, or loss?

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

Don’t get caught under Division 7A rules which refers to the use of company assets by shareholders, their family members and associated entities such as trusts. The ATO will treat 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. In relation to family trusts make sure distributions for the financial year have been resolved and documented by 30 June.

Tip: Seek specialist tax advice from a registered tax agent if you would like more information on whether the above issues are relevant to you.

Find out more

Morgans offers a complete suite of comprehensive services in wealth management, including financial planning, which can help you achieve your financial goals.

If you would like help reviewing your financial position and planning your year end investment strategies, talk to your Morgans adviser or contact your nearest Morgans office.

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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. Those acting upon such information without advice do so entirely at their own risk.

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