With the end of the financial year fast approaching, now is a great time to review your tax planning to ensure you have taken advantage of the opportunities available to you and your family.
Below we have outlined our top tips and strategies you may consider to help manage tax and maximise your savings.
Lump sum tax deductible contributions to superannuation
Previously this flexibility was reserved for substantially self-employed contributors, so employees had to plan ahead and achieve the same outcome over time through salary sacrificing.
This greatly simplifies the process for employees to top up their superannuation prior to June 30 and makes this particularly attractive if you have sold an asset and will pay capital gains. Your tax break will be your marginal tax rate less contributions tax of 15 per cent (or 30% for income earners over $250,000).
Don’t forget the maximum contribution limit for most people is now limited to $25,000 (inclusive of super paid by your employer) for the financial year and you will need to notify your fund that you intend to claim the contribution as a tax deduction.
Reduced after tax contributions
The government has continued to restrict access to the tax efficient superannuation system by reducing after tax contributions (non-concessional) $180,000 to $100,000 per annum or $540,000 to $300,000 over three consecutive years (using the bring forward provisions) for non-concessional contributions. This change was effective the 1st of July 2017.
Will your spouse earn less than $37,000 this financial year?
Make a spouse contribution to superannuation and receive a tax off set up to $540.
If your spouse has assessable income below $37,000 you could receive a tax offset on the first $3,000 of contributions you make to their account. The eligible offset depends on your spouse’s income and the amount you contribute.
Will you, your spouse or your children’s income be less than $51,813 this financial year?
Make a personal after-tax contribution (up to $1,000) and get a 50 per cent return if eligible for the Government co-contribution.
If you are eligible for a co-contribution this is the most effective way to contribute to superannuation as it provides an effective return of up to 50 per cent on your eligible contributions. It’s also a great way to boost the superannuation balance over time for young adult children or spouses whose employment income exceeds 10 per cent of their total income.
For each eligible $1 you contribute, the government will pay a co-contribution of 50 cents, up to a maximum co-contribution of $500 where your income is below $36,813. The co-contribution payable scales down until your income reaches $51,813 at which time it cuts out completely.
You should check with your adviser to see your eligibility and assess how much co-contribution you need to contribute to receive the maximum benefit.
Due to the new $1.6 million cap on tax free retirement pensions and the eligibility to make further non-concessional contributions, contribution splitting can be used to transfer a portion of contributions made from one member of a couple’s account (with a higher balance) to the account of the spouse with the lower fund balance.
The maximum split for a financial year is 85 per cent of concessional contributions up to the $25,000 concessional contributions cap and must be made in the financial year immediately after the one in which the contributions were made.
Timing transactions carefully can also provide tax advantages. For example, it might be beneficial to:
- Bring forward the payment of deductible expenses before July 1 and delay receipt of investment income until the next financial year.
- Prepay interest on investment loans and investment properties before July 1.
- Time the sale of investments so that realised capital gains can be offset against capital losses.
Planning for the financial year ahead
Even if you don’t have an opportunity to minimise tax for this financial year, it is still a good time to reset your plans for next year.
Some ideas that may be helpful include:
- Hold or transfer investments to the name of the person with the lowest taxable income.
- Review your salary package for any tax effective options available.
- Set up a salary sacrifice arrangement with your employer to contribute to super over the financial year from July 1 to boost your retirement savings automatically and reduce tax, averaging out your contributions.
- Hold life and total and permanent disability insurance cover inside your super fund to reduce the effective cost of premiums through tax concessions.
- Hold income protection insurance outside of your super fund to deduct the premiums at your marginal tax rate, not limiting this to lower tax rates in superannuation.
- If you are over 65 and downsizing a home you’ve held for 10 years after the 1st of July 2018, making use of the new Downsizing Contributions rules that will allow superannuation contributions of up to $300,000 per person, irrespective of your account balances and working status.
The information in this article is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before implementing any of these ideas or strategies, it is important that you seek financial planning and taxation advice for your situation.
If you want more information regarding the above, please call 6163 6100 to schedule a convenient time to discuss your personal situation, or speak to your personal adviser.
James McLeod is a Private Client Adviser with Capital Partners, FPA Professional Practice of the Year, and is committed to helping people live richer, happier lives.