Eight ways to save tax

June 30 is rolling around again and along with getting your shoebox out and paperwork organised, the coming weeks represent a last-chance opportunity to organise your affairs to save on tax.

This is the first year in eight that we haven't had a tax cut to look forward to. Indeed, many people will get an effective tax rise with the one-year flood levy due to come in from July 1.

TIP ONE: CONTRIBUTE TO SUPER … BUT WATCH THE LIMIT

June is traditionally the month for topping up your super - particularly if you're eligible for a tax deduction on your contributions. But with the reduced caps on contributions ($25,000 for the under-50s, $50,000 for those 50 and above), it is important not to contribute too much. The compulsory super contributions on end-of-year bonuses can be a particular problem if you've salary sacrificed up to the limit and forgotten to include (or underestimated) the bonus. This can push you over the contributions cap and into excess contributions tax territory of at least 46.5 per cent.

The best way to limit the impact of excess contributions tax at this stage is to ask your employer to stop any salary-sacrifice contributions you've organised until the new financial year. While the government has said it will allow first-time offenders to ask for a refund of excess contributions up to $10,000, this won't come in until July 1 so excess contributions tax will still apply if you exceed the cap this year.

Some employers’ pay cycles also include 27 fortnights this year that could also tip you over the maximum if you haven't allowed for an extra fortnight's employer super contributions.

Checking on your contributions is particularly important if you're also planning to make (or have made) a large non-concessional or after-tax contribution as any excess concessional contributions are automatically counted towards your non-concessional limit.

The contributions made two years ago could have consequences now if you unintentionally triggered the ''bring-forward'' provisions that allow you to contribute up to $450,000 and average it over a three-year period.

Many people are also being caught out under the 10 per cent rule, which allows you to claim a tax deduction on your personal super contributions if less than 10 per cent of your income comes from employment.

A lot of people think they've been substantially self-employed and make a contribution and then find at the end of the year they [don't qualify], their contribution then becomes a non-concessional one and, if they've made other non-concessional contributions, they may have breached the limit.

TIP TWO: TIME INCOME AND CAPITAL GAINS

A tried and true end-of-year strategy is to defer income and capital gains until after June 30 where possible, while bringing forward any tax-deductible expenditure to this financial year. This could involve organising fixed-interest payments to mature after June 30, delaying bonuses or eligible termination payments until July 1, and not asking for pre-payment in salary if you're taking leave in June.

However, with the flood levy coming in, says there may be an advantage in bringing forward income this year to avoid the levy. The levy will be 0.5 per cent of taxable income between $50,000 and $100,000 and 1 per cent on income above $100,000. Bringing forward income to this financial year may reduce tax as it won't be subject to the levy and may prevent taxable income from exceeding the threshold in 2011-1 2. The levy may also present a trap to people aged under 60 wanting to withdraw money from super.

While they can generally withdraw up to $160,000 tax-free, this is still included in their taxable income and subject to the Medicare and flood levy. Even a recontribution strategy (which involves withdrawing a lump sum and putting it back into super as a non-concessional contribution to boost the tax-free component of your super benefit) may incur the flood levy if undertaken next year.

It could be better to do those things this year

TIP THREE: PREPAY EXPENSES

The expenses such as subscriptions and income protection insurance premiums can be paid in advance, generating an immediate tax deduction. Where your lender allows it, you can also claim a tax deduction for prepaying next year's interest on an investment loan. If you believe interest rates will rise, this also has the benefit of locking in a fixed rate.

Taxpayers should also look at other tax-deductible expenses they have coming up and whether it is worth paying for them now to get the tax deduction. These could include accounting and advice fees, along with any work-related expenses you can legitimately claim. If you already have substantial out-of-pocket medical expenses, it may be worth bringing forward things such as check-ups and getting prescriptions refilled to maximise the medical expenses offset.

Many people forget that if they work from home they are entitled to claim a proportion of the costs of computers, equipment and even items such as phone, power and heating,. Keeping a diary of the expenses and time spent at the home office can help to substantiate these claims.

Charitable donations should also be made before June 30 to get an immediate tax deduction. The parents eligible for Family Tax Benefit Part A can also claim the Education Tax Refund for 50 per cent of eligible schooling expenses.

The refund covers expenses of up to $794 for each child at primary school (maximum refund of $397) and $1588 for each child at secondary school (maximum refund of $794) this year. Only a third of people claim for the maximum entitlement, so if you have not used up your full entitlement it may also be worth bringing forward education expenses to boost your refund. If you need to buy new uniforms, however, it may be better to wait until July 1 as uniform costs will be included in the refund next year.

TIP FOUR: INCOME SPLITTING

While you are not allowed to split ''personal exertion income'' - the fruits of your labour - with others, it may make sense to keep interest-bearing accounts and other investments in the name of the lower-earning spouse who will pay less tax on it.

If you have investments in your child's name, you should review this before June 30 as minors will no longer be eligible for the Low Income Tax Offset on passive or ''unearned'' income from July 1. This will cut the tax-free income they can earn from investments to $416.

TIP FIVE: GEARING

The lead-up to June 30 was traditionally Christmas for promoters of margin lending and protected loans. Taxpayers could set up a loan facility and claim next year's interest as an immediate tax deduction against their other income.

The global financial crisis put a dampener on that by providing a reminder that gearing also increases the risks of investing. But if you understand and manage those risks, it can still be a worthwhile strategy. If you have the view that markets will go up over the next five years or so it may be appropriate, but you wouldn't want to be more than 60 per cent geared at maximum and you could even look at a neutrally geared portfolio, where the income from the investments matched your interest costs but you get the tax deduction now.

If you expect to earn a lower income next year, prepaying interest makes particular sense. The borrowing expenses may also be claimed, although if they are more than $100 they will need to be apportioned over the lesser of five years or the term of the loan.

TIP SIX: MANAGING CAPITAL GAINS

Another popular strategy is to sell loss-making investments to generate capital losses, which can be used to offset any capital gains made during the year. However the opposite can also apply.

If you are carrying capital losses, she says, these are diminishing in value each year due to inflation. It may be worth taking some capital gains before June 30 to use up these losses. Timing of capital gains is also important as only 50 per cent of the gain is taxable if you hold the investment for 12 months or more.

A strategy for investors nearing retirement is to use tax-deductible super contributions to offset tax on capital gains.

TIP SEVEN: PENSIONS

With the government increasing the minimum drawdown level from market-linked pensions from July 1, the retirees will need to review their income needs and adjust the income they take from their pension drawdown to ensure they fall within the new limits.

The fact that some pensions (depending on where the dates fall) may pay 27 fortnightly payments this year, rather than 26, may also have unintended Centrelink consequences as the ''extra'' payment could be counted towards Centrelink's income test. If you've already received your minimum drawdown, you could ask your pension fund not to make the final payment to avoid this problem.

Another issue for pensioners is the Centrelink gifting arrangements, which allow you to gift up to $10,000 a year ($30,000 over five years) without it being included in the pension assets test. As gifting applies on a financial-year basis, she says there is an opportunity to reduce your assets by $20,000 by making one gift in June and another in July.

The retirees receiving a combination of the age pension and a private pension should also be wary of taking a lump-sum commutation towards the end of the financial year. It may be better to take it as income, as this will only affect your age pension for what's left of the financial year. If you take a lump sum, it will change the formula that Centrelink uses to calculate the non-assessable part of your pension - and the effect of that will be permanent.

TIP EIGHT: SELF-MANAGED SUPER

One of the changes in the budget dealt with self-managed funds that claimed to be in the business of share trading, enabling them to write off capital losses against other income for tax purposes.

While the legislation has not yet been passed, she says the government will require all losses to be treated as capital from budget night, so funds that have incurred losses will only be able to use them to offset capital gains.

The new rules applying to collectables held by self-managed funds are also scheduled to come into effect from July 1 and will explicitly prohibit fund members from gaining personal benefit from these investments purchased in the new financial year. Some funds may also need to review their total and permanent disability cover, as premiums will only be deductible where they relate to cover for a disability that prevents the member from working in any occupation (rather than the more generous definition of their own occupation) from July 1.

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