By Ben Rickman 

Ten days ago I sat down and began the process of mapping out a range of strategies (general and aviation focused) to help you reduce your tax bill. The outcome of this toil is featured below and I’ve every confidence that every one of you reading this before June 30th will find at least one idea that you can use to put a little more coin in your pocket.

First though, I need to paint you a picture of the extraordinary situation we currently find ourselves in. This is necessary to help put context around some of the recommendations you will potentially consider from the later part of this article… 

Kevin never really was a cool name… and as for Wayne, well, that’s arguably worse. Both were pretty popular in the 50’s though and I know that there are a lot of you around so apologies if my opinion here is a little grating. 

But the reality is, your two most prolific, public and current spokespeople have done little recently to improve that impression.  Sure they are always impeccably groomed, are very articulate, knowledgeable and aware of their surrounds. They even somehow manage to carry a self assuredness and poise that belies their conservative image. 

But despite this intellect, this composure and the sheer depth of penetration they have on the day to day operation of this country, their decisions over the last few months have been, well…disappointing.  In fact they’ve hurt. Hurt me, hurt you, hurt that bloke over there and, significantly, it seems hurt themselves. 

It may appear so but I am not actually expressing my sole opinion here, I am merely reporting on the mood of the nation as I write this piece. 

(Do me a favour and take a deep breath before you read this next paragraph and let that little voice in your head get progressively louder and grouchier as you close in on the end of my point).

Yes, I may be a little jaded considering that I am writing this article four days into a horrendous stock market correction, at the same time, I am fielding phone calls from anxious clients and watching the graph in the left bottom corner of my screen continue its downward trajectory, whilst also keeping an eye on the big board at the front of my office which is ablaze in red, rather than the calming green I have become accustomed to. 

For those of you that have never stepped onto a stock market trading floor, it is a colourful place,:colourful ties, colourful language and colourful computer screens everywhere, dominated on any given day by Green or Red to represent the stock market performance - live as it is happening and well, recently it has been appalling. 

A number of global issues are admittedly at play, including a worrying scenario in Europe. Which, in simple terms, reached crisis point the day that Greece opened its most recent credit card statement to discover it included more zeros than the economy has the capacity to repay. 

There is also a rather large oil rig on fire off the coast of the USA, an election in the UK and as I write this column a supposed/genuine threat of a terror strike in India coming at the same time as we are to understand of the successful 11th hour thwarting of another such attack in New York.

Add to that a kamikaze like the 40% tax stake driven into the very heart of Australia’s economic engine and it is little wonder that the big board in front of me is blinking silently in a lovely hue of blood red.    

Now the roles of Prime Minister and treasurer are no doubt difficult ones and I loudly applaud and thank each of these guys for subjecting themselves to public office. The scrutiny they face is not justified by the pay packet and I wouldn’t do it for twice what they are on. 

They stormed to office via opinion polls aching for change and brimming with enthusiasm. Those same polls now suggest that patience has been lost and the public is now brimming with frustration. Opinion polls are admittedly often drawn from a very narrow band. So perhaps a more broad measurement is necessary;

Enter every bookmaker in the country, who in the space of four days have collectively taken that much money on the coalition returning to office in November, that average odds have shortened from near on $5 only a couple of months back to $3.00 a moment ago.  For the non-punters out there… that is a seismic shift in a two horse race. 

I called my bookie three days ago after taking 24 hours to actually get my head around the spectacular blunder that the Federal government made in choosing to address only four recommendations of a possible 136 changes borne of the Ken Henry tax review.

And it’s not the fact that the government shied away from so many ideas that floored me; it’s the impact from one recommendation - taken in isolation which I doubt was Henry’s intention – that is so stunning.  

A Resource Super Profits Tax.  I’ll let other publications waste ink on explaining the details, but it is essentially an invitation for mining companies – the engine of our economy – to move their projects, their investment monies, their jobs, their profits, their company tax…etc to other resource rich areas such as Canada, Africa and South America. 

The  shares of our biggest miners since the tax was announced have nose-dived.

My point here and the ‘context that I was asking you to find’ is that you cant actually take the recovery that I was so bullish about just four days ago for granted and thus you need to look at every dollar you now have and importantly every dollar you can save as just that little bit more precious than it was not so long ago. 

So do your homework, get good advice and with a little effort and some genuine commitment before June 30th, you should achieve some savings.

STRATEGIES FOR TAX REDUCTION

INCOME

The first thing to understand is that tax rates and thresholds are going to move on July 1st, with the 30% tax rate kicking in at $37,000 up from $35,000 whilst the 38% tax rate is falling to 37% for those whom earn between $80,000 and $180,000. 

To take advantage of these modest, but nonetheless effective changes; you should get personal advice about the benefit to your situation of bringing forward deductions (as they will deliver a bigger benefit this year) and at the same time ask your adviser/accountant if deferring income to July works for you. 

It should, as income next year will be taxed at the lower rate.  For example, small business operators or contractors, which a lot of aviators, are could bill after July 1st, rather than this year.  Anyone being made redundant or receiving a bonus should fight tooth and nail to defer payments into the new financial year.

Another idea is to use accumulated capital losses whilst the tax rate is higher.  Let me qualify: let’s say you are sitting on losses from the share market Armageddon of 2008… if you are also sitting on accumulated gains then marrying these off in this financial year may give you more bang for your losing buck than you will get under next year’s tax scale.

WARNING: The ATO do not like share washing and have denied losses of this type in the past.  It is however very reasonable for everybody to review the performance of their investments and clearing some well performed stock from your portfolio gives you an opportunity to build a different and better portfolio.  I’d be staggered if anybody could justify selling out and back into the same stock for the same number of shares (which the ATO frown upon) with so much other clear opportunity spread all over the market. I’ve said it before and ill say it again:  get personal advice.

DEDUCTIONS

Bringing forward expenses into this financial year will give you a real leg up.  Next year they simply won’t deliver the same % kicker. So consider prepayment of interest on deductible debt, such as investment properties, margin loans etc. Remember to weigh this up against the potential interest rate penalty the bank will likely want to apply for allowing a prepayment. 

Income protection insurance, planned education expenses, your membership to pilots’ associations can all be pre-paid.  (Note memberships have a pre-payment deduction limit of $1,000 after which they will be claimed pro-rata).

Tools of trade also are a good one here, as the deduction will be less next year. So if you are thinking about a navigation toy for your aircraft, flight planning software, or safety upgrades etc and you have the capacity to buy them now, then you should.  If you really need them.  Context remember, context. 

You may not be aware, that we all get a $300 no-receipt work related expense deduction, but I recommend you keep your receipts as you may find you’re well over after just one trip to the Pilot Shop and limiting your claim to only $300 is almost certainly a waste.

You might also like to consider a forward purchase of avgas on the proviso that you can justify it as a business expense – you don’t need to have actually burnt it in the sky, but you do need to have paid for it on the ground. Of course, if the price of avgas drops sharply into the New Year, you may end up of worse off by having paid over the margin. 

This is where a fuel hedging strategy comes into play.  Ask your adviser if taking a position on the stock exchange in oil futures could work for you. If so, you can potentially offset the price movement of your chosen petrol type by making a return on the trade. This is dangerous stuff by the way and I am NOT recommending it straight up.  I am suggesting that you get advice about it how it may work for you. 

SALARY PACKAGING

Messrs Henry, Rudd and Swan could have played in this space, but didn’t, so salary packaging still has a place in your annual tax plan, although the reduced tax rates do diminish the benefit a little. Your options here are industry specific and at the mercy of your employer / award agreement, but one area that most of us can benefit is via a vehicle lease.

In fact if you have a vehicle under a few years old and you expect to clock up some reasonable km’s, it almost certainly should be leased. For a start, you save the 10% GST on everything from the maintenance to fuel to tyres. It’s a case by case scenario but someone in my position should be able to tell you pretty early on if it’s right for you.

Super contributions can be sacrificed and if your age, risk profile and income capacity is right – sacrificing should be considered.  Beware of the contribution limits. 

HOME OFFICE

Taking home work, i.e. planning your route from home, rather than the aero club can produce an array of tax deductions. It is a frightfully common deduction though and one that frankly relies on your honesty, but you still need to get it right. 

The logistics of checking such claims are impossible and you can practically hear the ATO sigh heavily every time they open a return with such a claim. HOWEVER, the minute the ATO find a more tangible reason to give you an audit – everything you have claimed in the past will be dragged to the surface.

Do not allow yourself to end up with flight related claims that suggest you were in the air for 200 days of the year and home related claims that suggest you were sitting in your fancy home office for 200 days also… I’m sure you get the picture.

Ideally a home office will be set up as such and although not mandatory, it is a great idea to run a diary for a period, say 30 days to see just how much time you are spending on work related tasks. This gives you an average base to extend out over the year and allows for you to consider your power bill, your broadband cost, your telephone expenses, newspapers, printer ink, software etc which can then all be claimed on a pro-rata basis. 

You can also depreciate items such as office furniture, laptops and the like – in relation to the time you have spent working at home. If your diary suggests you work from home for a day a week then you are at around 15%.

If you find that your time is closer to four days a week, then you might want to research the other factors that the ATO use to determine if you are actually running a home based business. The first thing that will happen is you will lose your Capital Gains Tax exemption on a fair percentage of your home, however, the same percentage of your place will be deductible on things like the interest on your mortgage, your rates, building insurance, even potentially maintenance may also be able to claimed.  This is one for your accountant.

DONATIONS

Donations are a highly valuable source of revenue for all sorts of causes in the community and if you can spare a little for a cause that you believe in… it’s arguably better in their pocket than the ATO.    Combining it with a personal goal seams to becoming more popular with entry fees to fun runs, ocean swims and the like all part of the action.

SPLITTING

The best way to reduce your tax bill is to hold interest bearing assets in the name of the family member paying the lowest amount of tax whilst assets that are highly depreciable and that do not generate income should be in the name of the higher paying individual. 
Do not however get sucked in to using your kids.  They pay tax at 66% on a modest amount, falling to 45% for the balance. At best holding an investment in a child’s name, will only match the highest marginal rate. 

OTHER YEAR END KICKERS

I’ve written in other editions about all sorts of great strategies to improve your position. From borrowing in super to starting a pension for over 55’s and so I wont bang on about those again.  But the following are a couple of small, but handy little strategies that would more than cover your subscription fee to this great magazine. 

By the way, if you don’t subscribe you are banned from reading on. Honesty box system applies.

GOVERNMENT CO-CONTRIBUTION TO SUPER

By making a personal contribution to super (separate and completely differently from the salary sacrifice I suggested earlier) some folk amongst us may be eligible for a government top up. In,fact it’s potentially a massive 100% return on your money.  For those with an income (including sacrificed amounts, FBT…) under $31,820 the payback is $1 for $1 up-to a maximum of $1,000.  For income above $31,820; a sliding scale applies.    

To be eligible for the co-contribution you must make a personal deposit into a complying super fund by June 30th and your total income must be less than $61,920. 

Note that at least 10% of your total income must be from eligible employment or running a business. In other words, passive rent or dividends can equal no more than 90%. Other rules around contribution limits, age etc all come into play. But if your earnings are under that mark it is worth investigating with your adviser. 

SPOUSE SUPER CONTRIBUTION

If your better half’s assessable income (including reportable fringe benefits) is less than $13,800 and you make a contribution to their superannuation, you should be eligible for a small but handy little tax offset. 

Again, plenty of traps exist and the amount received is pretty modest (maximum of $540) but that’s still a bit of money and laid all out on ALP losing the next election at $3.10 would probably turn it into $1,674…

Any advice contained in this article is general advice. It has been prepared without taking account of any person’s objectives, fi nancial situation or needs and because of that, any person should, before acting on the advice, consider the appropriateness of the advice, having regard to the client’s objectives, fi nancial situation and needs.