Tips for prepping your portfolio for your tax return

WITH Michelle BALTAZAR

Editor-in-Chief • Money magazine

Investors can minimise their tax bill through a variety of strategies.

However, Mark McShane, from Chrysalis Lifestyle Planning, says it’s important to consider whether your income in the following financial year is likely to be higher or lower.

He cautions against looking at tax savings in isolation.

“Consider the bigger picture of the planning pie.

"A strategy that provides a big deduction in one year may be questionable in terms of how it impacts your long-term goals.”

He recommends discussing investment-based tax strategies with both your financial planner and accountant.

If you own listed assets, such as shares and exchange traded funds, there may still be time for a portfolio review.

“Given the annus horribilis we saw across sharemarkets in 2022, now could be a time to restructure a portfolio,” says McShane.

“It’s not a strategy you may want to use every year, but following a period of volatility it’s an opportunity to review gains and losses to see if you can make some desired portfolio changes tax-effectively.

"This allows the capital losses on any poor performers to be offset against realised capital gains.”

‘Wash sales’ cause trouble H&R Block's Mark Chapman cautions against selling shares at a loss and buying them back in the new tax year.

“The ATO takes a hard line against so-called ‘wash sales’.

"This refers to the sale of an asset before the year end and the purchase of a substantially identical asset immediately after the year end.”

The ATO regards the purchase and the sale as effectively the same asset, ruling that anti-avoidance provisions may be applied to cancel any tax benefits with penalties possibly applied.

All this highlights the need to speak to a professional when it comes to making key portfolio changes with a view to managing tax.

If you’re thinking about joining a dividend reinvestment plan to reduce tax, think again. Dividends still need to be declared in your current year’s tax return even if you didn’t receive them as a cash payment.

“Dividend reinvestment is more of a compounding strategy rather than a way to trim tax,” says McShane.

Investors may be able to bump up a tax refund by prepaying expenses related to investments, such as interest on a margin loan or investment property loan.

Crypto investors take care Research by Roy Morgan in 2022 found more than one million Australians own cryptocurrencies, with self-managed super funds collectively holding $1496 million

And it's very much on the tax office’s radar.

Capital gains tax applies to each disposal of crypto, calculated on the difference between the amount you paid for the cryptocurrency and the amount you disposed of it for.

Any profit is subject to

CGT, which can potentially be discounted by 50% if you hold your crypto asset for more than 12 months.

What constitutes a “disposal” can be a source of confusion – it’s not just about converting crypto back to Aussie dollars.

Chapman says a disposal can be triggered by exchanging one cryptocurrency for another, and even using cryptocurrency to pay for goods or services or simply giving it away.

If you buy and sell cryptocurrency on a regular basis with a view to making a profit, you could be regarded as a trader.

If this applies, the profits on