As part of the 2014-15 Federal Budget the Government announced that it will impose a temporary Budget Repair levy of 2% on the part of a person’s taxable income which exceeds $180,000. The levy will apply from 1 July 2014 to 30 June 17 – for 3 financial years.
So what can you do to lower your taxable income and help save on tax?
1. Hold investment in the name of the lower-income spouse, so that income, such as bank interest or dividends is taxed in the lower-income person’s tax return. Beware of changing ownership on existing assets as you may incur Capital Gains Tax, however, moving large lump sums of cash will work effectively.
2. Invest in growth assets that produce minimal income distribution throughout the ownership of the asset but a higher level of capital growth ie. Low dividend yielding shares. Ensure these assets are sold after 30 June 2017 when the levy is removed.
3. Negative gearing can be a useful tool in reducing taxable income; however, you should not adopt a negative gearing strategy purely for a taxation benefit. The underlying investment you are purchasing needs to still have strong capital growth to make the strategy worthwhile in the long term.
4. Bring forward any deductions prior to 30 June 2017. If your income will be subject to the levy ensure you bring forward deductions into the next 3 years where possible. If for example you know that you will need to complete repairs on rental properties in the next few years ensure you do this before 30 June 2017.