Manage your income to reap the benefits

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Kelly of Investec Bank (Australia) Limited
Kelly of Investec Bank (Australia) Limited

As the end of the financial year looms, it seems sensible to  minimise your taxable income. But that’s not necessarily the best idea. In fact, there’s a significant difference between minimising your income and managing it.

Invariably, veterinarians all have high taxable incomes, so they are always looking for extra deductions around this time of year. “It’s very rare that somebody would not need or want that,” explains Investec’s Kelly Gall. “Our role comes in when they’re looking to purchase assets or stock or anything to get them those extra deductions. We can offer financial products and help structure those facilities to maximise their tax efficiency.

Obviously, we don’t offer tax advice—that’s the job of the individual vet’s accountant or financial adviser—but we will say to them, ‘Here are some structures you might want to consider’.” A possible example could be where the vet might want to take out a loan to buy some stock, then immediately pre-pay the interest on that loan. “In that particular example, we could offer an unsecured product, or one secured against the practice, or against commercial property or residential property. That’s an example of where we can be really flexible compared to other banks,” says Gall.

A strategic approach to managing your income can pay dividends, but it’s important to plan, explains Gall. This means investigating which costs you can pre-pay, such as leases on equipment, interest on loans and any other expenses you might like to pay that relate to the coming financial year. It’s a strategy that doesn’t just apply to practice owners. “When it comes to employees, or those who don’t have large practices, pre-paying investment properties or car loans, or interest on any commercial property may be worth considering,” Gall explains. “And don’t forget superannuation—depending on your circumstances, you may not have used this year’s allowance for concessional contributions to super.”

To take advantage of these strategies generally, you’ll need access to cash, says Gall. But if that proves difficult, using an overdraft, then paying it back over the next six or 12 months, can prove useful. “Some people do find that idea a bit weird—taking on debt in order to pay down debt—but we often see clients adopt this strategy so they can pre-pay some loans to gain the tax advantages,” Gall adds. “If you’re looking at a big tax bill and you can manage that liability forward a year, that’s an extra 12 months you can hang on to your tax money.” An alternative to taking on an overdraft may be to use your credit card for purchases, which can have a similar effect of spacing repayments across the financial year.

Of course there might be expenses associated with that strategy, but they may be balanced out if your card offers generous incentives such as frequent flyer points for eligible spend. The end-of-financial-year sales are often the best time of year to buy a new car, for example, and, “there are commonly concessions for buying a new car,” says Kelly. “It may be that you can claim some deductions even if you buy it on 28 June. When you’ve only owned it for two days and if you finance and prepay a lease, you might realise $10 to $15k worth of deductions.”

Many financial institutions will allow you to prepay interest on property, but not all, so if your property loan is with a lender who doesn’t, you may want to investigate refinancing—which brings us back to the issue of planning. If you’re looking to refinance your property, planning ahead will help and it’s worth speaking to your banker as early as possible. In general, says Kelly, I say to people every year, “plan early because until you have an idea of what your income may be, it’s very hard to do any planning to manage your income.”

To understand financing options and to enable practitioners to make an informed decision, speak to a professional in the industry with experience in financing for healthcare professionals. Investec Specialist Bank has over 20 years experience working with medical professionals and understands their specific needs. For further information contact one of our financial specialists today or go online to www.investec.com.au/ava.

 

 

 

 

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