Here’s what investors must do now as June 30 approaches
It’s wise to make money changes well before June 30 if you want to grab a bigger tax refund and make the best of your investment mix. Here’s why …
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Investors are experiencing one of the strangest periods in history, so in the lead-up to June 30 it’s vital to get planning and strategies right.
Financial markets have tumbled, rental properties have eviction bans amid COVID-19, oil prices went negative for a while, and superannuation and retirement rules have changed.
It’s easy to be distracted and forget about what needs to be done before the end of the financial year, but investors have a chance to make changes that can boost their wealth and cut their tax.
Whether it’s shares, real estate, or both, here’s what investors need to think about right now.
PROPERTY
Metropole Property Strategists CEO Michael Yardney said smart property investors used legal tax tricks to minimise cash flow leakage and maximise tax deductions.
Timing can be a key strategy, especially when it comes to lowering an investor’s tax bill or boosting their refund.
Many real estate investors get refunds, so it makes sense to spend money on tax-deductible items in June rather than July unless you want to wait another year for that refund.
“If property investors believe that they will have lower income next year, both from their personal exertion and also from their properties, it makes sense to maximise tax deductible claims against the higher incomes in the current financial year,” Mr Yardney said.
He said it was worth considering prepaying one year’s interest on an investment property loan to bring forward that deduction.
“And don’t forget to claim borrowing costs,” Mr Yardney said.
“The costs to take out the loan on your investment, including establishment fees, mortgage stamp duty and mortgage broker fees, can be also be claimed as tax deductions over a five-year period.”
Having a good accountant was important, Mr Yardney said.
“The taxation rules for property investors have become more complex and recent changes means some deductions are no longer allowed,” he said.
“For example, the landlord cannot claim travel deductions for inspecting or maintaining or collecting rent for their property. And deductions no longer apply for certain items that were previously depreciable.”
Mr Yardney said accountants’ fees were tax deductible, and investors should also get a depreciation report from a quantity surveyor to outline the deductions allowed for investment property fixtures.
Midsec Financial Advisors director Phillip Middleton said real estate investors should examine their expenses this month.
“If you have taxable income and you want to minimise tax, you might bring forward some maintenance or look at other property expenses you might be able to prepay,” he said. Landlord’s insurance is a common cost that can be paid annually in advance.
SHARES
There are divided views about what happens next with shares after they plunged in March before reclaiming much of their losses since then.
Some investment strategists predict more big falls because of COVID-19’s devastating impact on the global economy, while others see blue skies ahead.
Mr Middleton said share prices seemed fair at the moment given the level of uncertainty, and events in the coming months would determine whether they were underpriced or overpriced.
“My feeling is they’re probably going to be a bit better than everyone’s telling us,” he said.
“I think the government is trying to manage expectations.”
The most important strategy for share investors is to stick to their long-term plan but make tweaks if necessary when affected by changes such as dividends being cut or deferred.
“You don’t want to be selling in this market if you can avoid it,” Mr Middleton said.
He said people who had borrowed money to invest could consider prepaying interest 12 months in advance to claim a tax deduction this year, while some clients paid ongoing fees for their share advice or financial advice in advance – another tax deduction.
Surging sharemarkets earlier this year now seem like ancient history, but some investors booked big profits during the highs of February, and recent falls may give them a chance to reduce a tax bill by selling weak shares this month.
“If people had taken profits when the market was high, they may have some capital gains they have to pay tax on, and crystallising some losses now would be helpful from a tax point of view,” Mr Middleton said.
Investment specialist and author Danielle Ecuyer said a “rigorous review” of a share portfolio before the end of the financial year was prudent.
“Too often investors hold on to their losing shares in the hope they will return to the levels they bought them at,” she said.
“If you are worried about realising a loss, remember that you are much better off investing in a share that has real growth potential and the ability to pay dividends.
“There will be casualties from the 2020 recession. Not all businesses will survive and only the strongest will emerge in a better position. A year-end clean-out is sensible to maximise your cash position to reinvest as opportunities arise.”
Ms Ecuyer, whose new book Shareplicity was going to press as COVID-19 intensified in March and was put on hold for six weeks, said the coronavirus was changing investors’ strategies.
She said banks would be under pressure for a few years and their “dividends paid and share prices will not return to the pre-COVID-19 crash levels in a hurry”.
“The coronavirus recession has accelerated many changes in the digital, ecommerce and retail space as well,” Ms Ecuyer said.
“Technology shares are the relative winners and the traditional bricks and mortar retailers and retail-exposed property trusts will remain under pressure.”
Travel and tourism stocks were also unlikely to return to pre-COVID highs quickly, Ms Ecuyer said.
Originally published as Here’s what investors must do now as June 30 approaches