Why such a big issue for Financial Advisers?
Forget the winter football fever, the big challenge facing financial advisers is how to legally help their clients reduce their tax bill before the financial year.
In the last couple of years the federal government has wound back many tax deductions and offsets, but there are still many valuable claims for taxpayers and investors who plan ahead. Of course you will learn all about financial planning and tax planning specifically in both our Diploma of Financial Planning and Advanced Diploma of Financial Planning. These courses are no longer taking enrolments, but you can still learn all about financial planning through our brand new financial services course, the Advanced Diploma of Paraplanning. Of course in the interim, here is a quick summary of some of the key issues.
Pre-paying insurance expenses
The general goal at tax time is to bring forward tax-deductible expenses to the current year and delay income until next financial year. Income protection insurance held outside a superannuation fund is generally tax deductible so some advisers recommend to their clients to pre-pay next year’s premiums to claim the full deduction in this year’s tax return. We cover how super and insurance work in Module 3 and 4 of the Diploma of Financial Planning so don’t worry if these concepts are currently foreign.
General rules on deductions
While all claims should be supported via a receipt, you can claim for work-related items up to a total value of $300 without receipts. You should always speak to a registered tax accountant before acting in regard to tax ‘stuff’.
It is fair to say the last financial year has probably produced mixed results for investors depending on the investment asset classes they chose. One thing advisers help clients do leading up to June 30th, is to rebalance their investment portfolios. That may involve selling winning investments and offsetting the capital gains by selling poorer performing investments. In a sense this is “matching” a capital gain with a capital loss incurred in the same or previous year. Of course if a client is only faced with “winning” investment returns with no “losers”, that is a good ‘problem’ to have 🙂 Ideally advisers also look to guide their clients towards selling investments held for at least 12 months in order to enjoy the 50 per cent capital gains tax (CGT) discount available.
Investment properties allow for immediate deductions for:
- Interest on loans taken out to purchase the investment property
- Repairs and maintenance
- Agent fees to manage the property, council rates and bank charges on the loan
Advisers often add a lot of value right here! They help clients to determine the optimal amount to put into super, and ensure their clients don’t get caught out on things like contribution limits. For example the maximum concessional (pre-tax) contribution for people aged 60 and over as at June 30 2014 is $35,000, and $25,000 for younger tax payers. Without getting into too much detail, putting money into super is very tax effective (…do our course to find out why).
Low-income earners are not forgotten either. If they make a personal super contribution the government will chip in 50 cents for every dollar up to a maximum of $500 for people on incomes below $33,516. And retirees with super pensions (again don’t stress if you are thinking “what is that!”)…we promise you will learn all about this in module 3! Ok getting back to our initial point, a financial adviser needs to ensure their retiree clients draw the minimum super pension by June 30, or risk losing their tax exemption on investment earnings.
This is merely a summary of some of the important June 30th considerations and it does not constitute tax advice. Always speak to a licensed financial adviser who will work collaboratively with the client and accountant to get the best outcome. If you would like to know more about what a financial adviser does or the education requirements that Monarch Institute specialises in, feel free to call one of our friendly course consultants on 1300 738 955.