The end of the financial year is approaching fast, so it is now time to consider your options in managing taxation liabilities that may arise for the financial year ending 30 June 2006. Planning should incorporate the preparation of financial results to the 31 March 2006, projected forward to 30 June 2006.

By taking the time to review your performance for the year, there are some simple tax planning techniques that can be used to minimise taxation liabilities. These include, but are not limited to, the following;

Superannuation contributions
Superannuation has become a more attractive tax planning mechanism since the abolition of the Superannuation Contributions Surcharge from 1 July 2005. Before 1 July 2005, where a taxpayer’s adjusted taxable income was greater than the threshold ($99,710 in 2004/05), superannuation contributions claimed as a tax deduction were subject to superannuation surcharge up to a maximum rate of 12.5% (2004/05).

Where a person is self employed (ie. satisfies the requirements of being an eligible person and has less than 10% of their assessable income from employment) and makes a superannuation contribution to a complying superannuation fund, a deduction is available for the first $5,000 plus 75% of the excess, subject to the following aged based limits:

Age at date of last contribution	Maximum deduction	Contributions required to obtain maximum
Under 35	$14,603	$17,804
30 to 49	$40,560	$52,413
50 and over	$100,587	$132,449

Medical practitioners who operate through a medical practice company are able to have the company make contributions on behalf of the practitioner. The contributions are treated as employer contributions, which are fully tax deductible up to the age based limits (ie. the rules that apply to self employed persons do not apply to employer contributions).

Superannuation can provide significant tax savings as part of the year end tax planning strategies.

Strategic opportunities may also arise with respect to superannuation splitting which became effective 1 January 2006.

Prepaid expenditure
Taxpayers who are eligible and have elected to enter the Simplified Tax System (STS) can pre-pay expenditure for up to 12 months and claim an immediate deduction. This provides an opportunity to defer income tax to a later income year by prepaying expenditure such as rent, interest and insurance.

If a business taxpayer has not elected to be in STS, then any prepayment of expenditure beyond 30 June 2006 will need to be apportioned and claimed as a deduction over the period to which the expenditure relates. Individuals who are not carrying on a business still have the opportunity to prepay expenditure (eg. interest on rental property loans) even where they are not part of STS.

Change in personal tax rates
From 1 July 2005 the resident taxpayer thresholds for the higher marginal tax rates were increased, and the marginal tax rate for low income earners was decreased from 17% to 15%. The proposed rate changes for the 2007 financial year will see a further increase in the thresholds for the higher marginal tax rates.

These changes to tax rates and thresholds should be considered when undertaking any year end tax planning. It should also be noted that there is speculation of additional income tax cuts to be announced as part of the 2006 federal budget, however the extent, if any, of these is currently unknown.

The above suggestions provide a guide as to some tax planning opportunities that may be available if implemented before 30 June 2006. As every taxpayer’s situation is different it is important that you consult a qualified accountant to assist you with your year end tax planning.

Tax thresholds 30/06/2006 tax year	Proposed thresholds 30/06/2007 tax year
Taxable income range	Taxable income range	Tax rate
$0 – 6,000	$0 – 6,000	Nil
$6,001 – 21,600	$6,001 – 21,600	15%
$21,601 – 63,000	$21,601 – 70,000	30%
$63,001 – 95,000	$70,001 – 125,000	42%
$95,001 +	$125,001 +	47%

Russell Franey is a partner at Thomas Noble & Russell Chartered Accountants. For further information, phone Russell, Peter Morrow or Gavin Tulk on 6621 8544.