End of Financial Year Tax Planning Strategies

The end of the Australian financial year on June 30 presents both challenges and opportunities for tax planning. With the right strategies implemented before this date, you can legally minimise your tax liability and maximise your financial position. This guide covers essential EOFY tax planning strategies that every Australian taxpayer should consider.

Why EOFY Planning Matters

Tax planning at the end of the financial year is crucial because many deductions and strategies only apply to expenses incurred within a specific financial year. Once June 30 passes, you cannot go back and claim deductions for the previous year (with very limited exceptions).

The weeks leading up to EOFY are your last opportunity to take actions that reduce your tax liability for that year. Whether it is making super contributions, prepaying expenses, or purchasing work-related items, timing can make a significant difference to your tax outcome.

Effective EOFY planning starts with understanding your current tax position. Use our Australian tax calculator to estimate your taxable income and see how different strategies might affect your final tax liability.

Maximising Super Contributions

Superannuation contributions are one of the most effective EOFY tax strategies. If you have not reached your concessional contribution cap of $30,000 for the year, consider making additional contributions before June 30.

Salary sacrifice arrangements should be set up with your employer well before EOFY to ensure payments are processed in time. Personal contributions can be made directly to your super fund, but you need to submit a Notice of Intent to claim a deduction and receive acknowledgment from your fund to claim the tax deduction.

If you have unused cap amounts from previous years and your total super balance is below $500,000, you may be able to make catch-up contributions. Check your MyGov account to see your available carry-forward amounts, as this can significantly increase your deductible contribution capacity.

Prepaying Deductible Expenses

For individuals earning salary and wages, certain expenses can be prepaid before June 30 to bring forward deductions into the current financial year. Common prepayable expenses include income protection insurance premiums, professional memberships and subscriptions, and union fees.

The prepayment rules generally allow you to claim a deduction for up to 12 months of prepaid expenses. This is particularly useful if you expect to be in a lower tax bracket next year or if you have had a high-income year and want to maximise deductions.

Investors can prepay interest on investment loans (such as margin loans or investment property loans) for up to 12 months in advance. The deduction is claimed in the year of payment, potentially reducing a high-income year's tax while locking in interest costs.

Purchasing Work-Related Items

If you need work-related equipment or tools, purchasing them before June 30 allows you to claim the deduction in the current year. Items costing $300 or less can be immediately deducted, while more expensive items are depreciated over time.

Common purchases made at EOFY include computers and technology equipment, professional development courses, tools and equipment, work-related software and subscriptions, and protective clothing and uniforms. Only purchase items you genuinely need; the goal is to time necessary purchases optimally, not to buy things just for the tax deduction. Spending $1,000 to save $370 in tax (at the 37% rate) still costs you $630.

Making Charitable Donations

Donations of $2 or more to registered Deductible Gift Recipients (DGRs) are tax-deductible. If you planned to make charitable donations, doing so before June 30 ensures you receive the deduction in the current year.

Consider consolidating planned donations at EOFY if you have a higher-income year, as the tax benefit is greater when you are in a higher tax bracket. A $1,000 donation provides a $450 tax benefit at the 45% marginal rate compared to $300 at the 30% rate.

Managing Capital Gains and Losses

If you have realised capital gains during the year, EOFY is the time to review your investment portfolio for opportunities to crystallise losses that can offset those gains. Selling loss-making investments before June 30 creates a capital loss that reduces your taxable capital gains.

Be aware of the wash sale rules, which may deny a loss if you sell an asset and buy a substantially similar asset shortly before or after. Also consider whether assets have been held for 12 months, as longer-held assets qualify for the 50% CGT discount.

If you have both gains and losses, strategically timing the realisation can minimise your overall CGT liability. This is a complex area where professional advice can be valuable.

Reviewing Your Income

For those with some control over the timing of income (such as sole traders, contractors, or investors), consider whether deferring income to the next financial year makes sense. If you expect to be in a lower tax bracket next year, pushing income into July rather than June could reduce your overall tax.

Conversely, if you expect income to increase significantly next year, bringing income forward into the current lower-tax year might be beneficial. This requires careful analysis of your expected income and marginal rates in both years.

Spouse Super Contributions

If your spouse earns less than $40,000 per year, you may be eligible for a tax offset by contributing to their super before June 30. You can receive an 18% tax offset on contributions up to $3,000, meaning a maximum offset of $540.

This strategy helps build your spouse's retirement savings while providing you with a tax benefit. It is particularly valuable for couples where one partner has reduced income due to caring responsibilities or part-time work.

Organising Your Records

EOFY is an excellent time to organise your records for the year. Gather and sort all receipts for deductible expenses, reconcile bank statements with claimed expenses, prepare records of work-related travel and vehicle use, and document home office hours if claiming home office expenses.

Good records not only make tax return preparation easier but also protect you in the event of an ATO audit. The ATO uses data matching to verify claims, and having comprehensive documentation supports your deductions.

Private Health Insurance

If you are close to or above the Medicare Levy Surcharge income thresholds ($93,000 for singles, $186,000 for families), check whether you have held appropriate private hospital cover throughout the year. The surcharge can be avoided by having the right level of cover.

While you cannot retrospectively obtain cover for the current year, EOFY is a good time to review your situation and ensure you have appropriate cover in place for the coming year if your income warrants it.

Creating an EOFY Checklist

To make the most of EOFY planning, create a checklist of actions to complete before June 30. Key items include calculating your expected taxable income for the year, reviewing unused super contribution cap and making contributions, identifying prepayable expenses and making payments, purchasing any needed work equipment before the deadline, and making planned charitable donations.

Additional items to consider are reviewing investment portfolio for CGT planning opportunities, organising and filing all receipts and records, ensuring private health insurance meets surcharge requirements, and scheduling a meeting with your tax advisor if needed.

Conclusion

EOFY tax planning is an annual opportunity to optimise your tax position. By taking action before June 30, you can legally minimise your tax liability and ensure you are making the most of available deductions and concessions.

The key is to start planning early, understand your current position, and implement strategies that genuinely benefit your situation. For complex circumstances, consulting a registered tax agent can identify opportunities you might miss and ensure your strategies are sound. Use our free tax calculator to understand your tax position and plan your EOFY strategies accordingly.