Australia is gearing up for stage three tax cuts, promising relief for many taxpayers. However, amidst the anticipation, there’s an opportunity you won’t want to overlook. Currently, your tax deductions hold more value than they will next financial year. By acting now and leveraging your deductions strategically, you can unlock substantial tax savings. Let’s delve into this window of opportunity and how you can use it to your advantage save tax before the stage three tax cuts come into force.
Understanding stage three tax cuts
Scheduled to kick in on 1 July, the stage three tax cuts aim to simplify and reduce tax rates, promising savings for many Australians.
Most of the media hype has spoken about the winners, the losers and who will benefit. But there is one thing they’re not talking about that they should be. There is a small window of opportunity to get more back in your tax return this financial year than there will be ever again.
The window of opportunity
The period before these tax cuts come into effect presents an opportunity for savvy taxpayers.
Lower tax rates next year mean that you’re going to pay less tax in the next financial year. This is obviously a good thing, but the fact that tax rates are higher in this financial year means that your deductions will be worth more before 30 June than they will be from 1 July. Essentially, deductions have more leverage when tax rates are higher. As tax rates decrease under stage three, deductions will offset less tax than they do currently.
However, because this opportunity is finite, it’s important to act swiftly. If you want to use these changes to your advantage, you need to be on the front foot with your tax planning to increase your tax refund and pay less tax.
Crafting your strategy
So, how can you make the most of this opportunity? Here are some key strategies to consider:
- Review your deductions: Take stock of your eligible deductions and explore opportunities to maximise them before the tax cuts come into effect
- Accelerate deductions: Where possible, consider accelerating deductible expenses to claim them in the current financial year, maximising their value.
- Seek professional guidance: Work with a professional to develop a tailored tax strategy aligned with your financial objectives. Our expertise ensures you navigate this period effectively, maximising your tax savings.
Maximising your deductions
Let’s explore some examples of deductions you can consider bringing forward:
- Prepaid expenses: Consider prepaying deductible expenses such as interest, insurance premiums, subscriptions, and memberships before the end of the financial year.
- Charitable contributions: If you’re planning to make charitable donations in the future, consider bringing them forward to the current financial year to claim the deduction sooner.
- Work-related expenses: Review your work-related expenses and consider bringing forward any eligible deductions, such as professional development, home office expenses, and uniforms.
- Investment-related expenses: For investors, consider bringing forward deductions related to investment activities, such as investment loan interest and investment advice fees.