Financial Products at Tax Time

The end of the financial year is fast approaching and it’s time to get your tax affairs in order.

At tax time we always focus on our income and our deductible expenses, but it is also important to consider the taxation implications of our financial products such as insurance and investments.

When looking at your financial products from a taxation perspective, it is important to look at the money coming in as well as the money going out.

In today’s guide we will look at some of the more popular financial products and what is required for your tax return.

Superannuation

Superannuation is one of the most complex financial products when it comes to taxation, as the tax treatment and allowances for contributions vary depending on the type of contribution as well as your age.

If your only contribution to super during the year has been the compulsory 9% contributed by your employer, then there is nothing you need to do with regards to your tax return.

If you have made additional contributions, you will need to determine whether they were concessional or non-concessional. Each type of contribution is treated differently by the tax office, so if you are unsure you should speak with your accountant.

Concessional contributions are generally made via salary sacrifice for an employed person, or as personal contributions by a self-employed person who can then claim a tax deduction. Tax deductions cannot be claimed for non-concessional contributions.

Super Co-Contribution

If your taxable income in the 2011-12 financial year was less than $61,920 and you made a personal contribution to your super you may be eligible for the Commonwealth Government’s super co-contributions.

The co-contribution scheme involves the government making an additional contribution to your super balance, which varies depending on your income and the amount you have contributed.

Income Protection Insurance

Income protection is not only a great way to protect yourself financially, but it is also the source of an easy tax deduction.

Premiums

Income protection is the only form of personal risk insurance which has fully tax deductible premiums.

Your insurance company should issue you with a summary at the end of the financial year outlining the premiums that have been paid.

Claims

Whilst income protection premiums are tax deductible, it is also important to remember that any claim proceeds from the policy must be declared as taxable income.

If you have made a claim on your income protection during the financial year it is imperative that you declare this income on your tax return.

Investments

If you have any type of financial investment such as shares or managed funds, there are various forms of information that will have to be declared on your tax return.

Similar information must also be disclosed for property investments, however we will not be covering property as it is not classed as a financial product.

Investment Income

All dividends paid from shares and distributions paid from managed funds must be declared on your tax return as income.

Your managed fund provider will issue you with a tax statement shortly after the financial year has ended, whilst for your share portfolio you must collect and file each dividend statement as it is issued during the year.

Investment Borrowing

If you have borrowed money for your investments, including the use of margin loans, you can claim a tax deduction on all interest and borrowing costs.

Capital Gains Tax

If you have been lucky enough to sell any of your investments during the year for a profit, then you must declare these gains on your tax return. The level of tax will depend partly on how long you have held the asset, with a 50% discount given if you have held it for more than one year.

If you have sold an asset for a loss during the financial year you must also declare this figure, and it can be used to offset any capital gains you enjoyed, which helps to reduce your tax bill.

Maximising Your Return

The information provided in the article is general in nature, and in order to maximise your tax return it is important to seek expert advice from a suitably qualified taxation professional.

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