It is the time of year when the tax wheel of temptation gets a healthy spin.

No-one likes paying tax and it is perfectly reasonable to arrange your affairs in order to minimise tax bills. The danger is that at times cutting tax bills becomes almost an obsession and people fail to look beyond the bright lights of today's tax deduction to understand the long-term value of the underlying investment they are sinking hard-earned dollars into.

In recent years the federal government and tax office have progressively tightened the provisions around the more exotic - and complex - film and agriculture schemes to ensure they were real businesses. Financial planners with a few grey hairs can tell you horrifying stories of film and agriculture schemes where the investor's funds never got anywhere near planting a tree or turning the lights on in a film studio.

The landscape as we head into the last month of the 2007-08 financial year is quite different. The tax office's product ruling program has cut a positive swathe through the types of agriculture or film type schemes on the market and given investors more certainty around deductions if they comply with the product ruling the ATO issues on specific products.

One of the key changes in the recent federal budget was that an interest rate deduction when you borrow to invest via a margin loan or other structured finance product will be pegged at 9.45%. While that has not received a lot of media attention it is quite a bit lower than prevailing rates on some of the products in the marketplace - typically around 12% to 14% - so investors and advisers will need to do their sums to see if the investment still stacks up given the tax deduction may be significantly lower.

Pre-paying interest for 13 months is a common strategy but again it is only a positive outcome if the underlying investment eventually grows in value.

But there are also basic pieces of tax-planning that people generally should be considering.

These include:

• Are you maximising the tax deductions available through super?
  If you are under 50 you can make tax concessional contributions up to $50,000 or $100,000 if you are over 50. One note of caution for people doing this is to be careful not to inadvertently go over the limit because items like insurance premiums perhaps paid by your employer are counted towards the contribution limit.
• Are you eligible for the super co-contribution? For people below the income level ($58,980) this is as generous as governments ever get and self-employed people may also be eligible this year.

It is also worth reviewing your portfolio both inside and outside of super because the sharemarket volatility of the past eight to nine months may have significantly changed the tax position on certain investments.

One thing to be aware of is that with the market volatility fund managers may have increased portfolio turnover which can lead to unexpected tax bills after June 30 when the tax statements come out.

The issue here is that by realising short-term capital gains the investor will receive that as taxable income. It really would rub salt into a portfolio's wound if when you reviewed your portfolio after the end of the financial year and the capital value had dropped but you had a larger than expected tax bill to pay.

Asking direct questions of your adviser or fund manager about the split between income and growth returns before June 30 may help with your tax planning.

To illustrate the impact consider the difference in potential tax outcomes between an investor in Vanguard's Australian Share Index Fund and an investor who received the average return of the 20 largest Australian share funds.

At the end of December 2007 the index fund's total return for the previous three years year was 20.7%. The average of the top 20 largest funds was a comparable 19.3%. However, the income return on Vanguard's index fund was 5.6% compared with the average of the top funds which delivered 15.2% of the return as income.

For a top marginal rate taxpayer receiving a large taxable distribution may not only mean an unexpected tax bill but also undermines the investment goal if the aim is to growth assets over the longer term.

One final note of caution. If you have investments that you are quite happy with but they are showing a paper capital loss and you are thinking of selling them to crystallize the loss for tax purposes and then buying the investments back - so-called "wash sales" be sure to get good tax advice. The tax office has issued a taxpayer alert warning that certain types of wash sales are simply schemes to reduce tax - and significant penalties will apply.