Bust a tax move now but beware of the election’s uncertainty

Investors who ignore tax strategies now simply because of the uncertainty of the federal election risk missing out on some handy financial benefits.

The last two months of the financial year — May and June — are always a busy time for investors and super fund members making some funky tax moves.

This year it’s busier than usual. And it’s crazy. And just like dancing, it’s downright confusing.

That’s because we have a federal election sandwiched right in the middle of it. And this election, which Labor is expected to win, could cause more tax headaches for investors than any election in living memory.

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Labor wants to strip franking credit cash refunds from self-funded retirees, claw back extra revenue from tougher rules for negative gearing and capital gains tax, and abolish some superannuation incentives.

While it might seem tempting to bury your head in the sand until it’s all over, that could be costly to your wealth.

There are some things you should think about doing now, and some things you should wait and see until the election dust settles.

Don’t ignore handy tax strategies just because a federal election is looming.

WHAT TO DO NOW:

1. Maximise tax deductions. The rule changes won’t stop investors from boosting their tax refund this year by spending money now on things such as investment loan interest, landlord insurance or property maintenance.

2. Boost your super. Labor plans to lower the limits that people can contribute to super, and remove some flexibility around payments. So if you have the capacity to enlarge your nest egg before July 1, have a crack.

3. Keep a close eye on policies and the election outcome. Sometimes rule changes can occur quickly — as often happens with Federal Budget announcements — so make sure you don’t get caught out. Knowledge is power.

Many self-funded retirees will have to be frugal if Labor wins this month’s federal election.

4. Plan for several outcomes. For example, if you’re a long-term investor looking to buy in the next one or two years, it may be wise to act before December 31 to beat the proposed capital gains tax crackdown.

WHAT NOT TO DO:

1. Panic buying or panic selling of assets should be avoided, even if Labor wins and your strategies are looking shaky. With a narrowing in the polls suggesting that minor parties may again hold the balance of power, there’s no guarantee that any of Labor’s plans will pass in their current form.

2. Expect policies to be pummeled in the new parliament. For example, Labor’s franking credit attack may not win Senate support because it’s slugging some middle-class retirees $10,000 a year. It could get watered down.

3. Never invest purely for tax benefits. An investment should stand on its own, and any tax advantages — such as negative gearing — should only be a side benefit. The best investment property is a positively geared property, because it means you are making money rather than claiming a tax deduction for your losses.

4. Don’t deviate from your long-term plan to build wealth or retire comfortably. Governments are always going to mess with the rules, and while this is annoying it won’t be the main driver of investment success. Buying quality assets whenever you can and holding them for many years is still the safest and most proven way to get rich.

@keanemoney

Originally published as Bust a tax move now but beware of the election’s uncertainty