2025 Tax Planning Strategies
Reviewing and optimising your tax situation is essential as the end of the financial year approaches 30 June 2025. Effective tax planning can enhance your financial outcomes by reducing tax liability and strengthening your investment portfolio. Here’s a comprehensive guide of various tax planning strategies that could benefit you.
Superannuation Contributions
Superannuation is a powerful tax planning tool to reduce your taxable income while investing in your future. Here are the key areas to focus on:
If your total superannuation balance allows it, you may be able to make a deductible personal contribution up to the $30,000 concessional cap, which includes employer contributions and salary sacrifice amounts.
If your balance was under $500,000 on 30 June 2024, you could carry forward unused cap amounts from the past five years, making a larger contribution and potentially claiming a significant deduction this year.
Spouse Contributions: You can make super contributions on behalf of your spouse (married or de facto), provided you meet eligibility criteria and your super fund allows it. This is particularly beneficial if your spouse's income is below $37,000 this tax year. You may benefit from making a spousal contribution of up to $3,000 to their superannuation before 30 June 2025 to qualify for a tax offset.
To claim a deduction:
Be under 75
Lodge a notice of intent with your super fund
Receive acknowledgment before lodging your tax return
Note: For those aged between 67 and 74, you can only claim a deduction on a personal contribution to super if you meet the work test.
Contributions must be received in the superannuation fund’s bank account by 30 June 2025 to ensure they count towards the current year's caps. To mitigate any risk of delays, plan to make contributions by Friday, 20 June 2025. Please check with your superannuation fund to confirm specific cutoff times.
Income Protection Insurance
Premiums for income protection insurance are tax-deductible. If possible, prepay your annual premium before 30 June to claim a deduction for the current financial year.
Gifts and Donations
Donations of $2 or more to deductible gift recipients are tax-deductible. Ensure you obtain and keep receipts for all donations so you can claim them accurately. If you and your spouse are in different marginal tax brackets, consider making additional deductions for the spouse at the higher tax rate. Donations to overseas charities may not be tax-deductible.
You could also consider structured giving, such as contributing to a public ancillary fund or establishing a private ancillary fund, which can allow for an immediate deduction with long-term charitable benefits. Donations made to these funds can often qualify for an immediate deduction, with the fund then investing and managing the money over time. The fund generally needs to distribute a certain portion of its net assets to DGRs each year.
HOME OFFICE ExPENSES
Working from home has become a standard part of life for many professionals. However, it’s important to note that work-from-home deductions remain an area of active ATO scrutiny. There are two methods of claiming your work from home expenses; the short-cut method, and the actual method.
Short-cut Method allows you to claim a fixed rate of 70c for every hour you work from home for the year ending 30 June 2025. This covers your energy expenses (electricity and gas), internet expenses, mobile and home phone expenses, and stationery and computer consumables such as ink and paper. To use this method, you must keep a record of the actual days and times you work from home because the ATO has stated that they will not accept estimates.
The alternative is to claim the actual expenses you have incurred, in addition to your normal running costs, for working from home. You will need copies of your expenses and your diary for at least four continuous weeks that represent your typical work pattern.
Depreciation Schedule for your investment property
If you own an investment property, obtaining a property depreciation report prepared by a Quantity Surveyor allows you to claim deductions for depreciation and capital works on the property and its assets. The initial cost of this report is often offset by substantial tax savings in the first year of property ownership.
Note: deductions for properties acquired after 1 July 2017 may have restrictions. Additionally, the expenses related to obtaining a quantity surveyor's report are tax-deductible.
Private Health Insurance
The Medicare levy surcharge (MLS) is payable if an individual has a taxable income of $97,000 or a family taxable income of $194,000 and does not have private patient hospital cover. The MLS rate, which can range from 1% to 1.5%, is calculated based on your taxable income, reportable fringe benefits, and any family trust distribution tax paid. A specific income definition (income for MLS purposes) determines MLS liability and rate, which differs from your taxable income. By taking out appropriate health insurance coverage, you can avoid the surcharge.
SALARY PACKAGING AN ELECTRIC VEHICLE
Since 1 July 2022, new electric vehicles under the luxury car limit are exempt from Fringe Benefits Tax. This means an electric vehicle under $91,387 can be salary packaged for a substantial tax benefit.
Electric Car home charging rate
If you own or lease an electric car used for work and use the logbook method to calculate deductible running costs, it can be challenging to work out the cost of electricity used to charge the vehicle at home. Under the new guideline, if an employer provides an employee or an associate with an EV, which results in car, residual, or expense payment benefits, they may opt to use the simplified rate of 4.20 cents per kilometre to determine the taxable value of these benefits. This same shortcut method can be utilised for individual taxpayers to calculate work-related car expenses for income tax purposes, particularly when using the logbook method.
The guidelines do not apply to plug-in hybrid vehicles with an internal combustion engine.
As we approach the end of the financial year, implementing these strategies can help you maximise your tax benefits and set yourself up for the next year. If you have any questions or need personalised advice, please don't hesitate to get in touch with our office. Taking proactive steps now can result in significant benefits in the future.
WARNING
The information in this article is general in nature. It does not consider your specific needs or circumstances, so you should consider your financial position, objectives, and requirements and seek financial advice before making any financial decisions.