End of Financial Year - What are we doing?
The End of Financial Year (EOFY) does not have the same rush or panic it did when I started in the financial planning industry in the early 2000s.
Gone are the days when I was running cheques to super fund providers and getting it stamped on the 30th June to make sure that contributions were made in that current financial year.
Gone are the days where there are complex, leveraged, structured products that clients would utilise to pre-pay interest and receive a large tax deduction prior to 30 June.
As it stand in 2021, there are limited opportunities available for Australians to take advantage of prior to the end of financial year.
However, we are still working with a plethora of people to maximise their financial situation as many strive to reduce their tax liability and achieve financial freedom.
We wanted to outline a few examples of what we are currently working on, so you get an understanding of what our financial planners at Newcastle Advisors do and how they could potentially support you & your family.
1. Catch up contributions
From2019-20, carry forward rules allow you to make extra concessional contributions - above the general concessional contributions cap.
Many of our self-employed clients are taking advantage of this opportunity, to minimise their tax & continue to build their retirement funds.
Case Study
We have a self employed couple in their 60s.
Being self employed, superannuation has not been a focus for them, they did not believe in superannuation.
However, after our discussions, they have made catch up concessional contributions, saving over $26,000 in tax.
Given their ages, the restrictions & timeframes on accessing their superannuation is significantly less.
2. Transition to retirement pension
Transition to retirement income streams are available to assist those looking to gradually move to retirement by accessing a limited amount of super (up to 10% of your account balance).
We are seeing many people that are looking at repaying their mortgage or completing renovations to improve their life as they move towards retirement.
Case Study
We have a couple in their 60s.
They are expecting a large inheritance in the next few years.
However, they need to do a number of things around their house before they sell and downsize.
They are looking at commencing a TTR pension with a large proportion of their superannuation funds, withdrawing $35,000 in June (this financial year) and a further $30,0000 in the first week of July (next financial year) to pay for their bathroom renovations. These withdrawals will be received tax free (given their ages).
They have a plan in place to top-up their super when they downsize and when they receive an inheritance.
In addition, given they are over the age of 60, they can benefit from salary sacrificing.
By drawing an income from their TTR pension and salary sacrificing the difference into superannuation, the estimated tax saving is over $5,000 per annum.
3. Re-contribution strategy
The strategy is particularly important from an estate planning perspective.
A re-contribution strategy involves withdrawing a lump sum and re-contributing these funds into superannuation as a non-concessional contribution.
The revised superannuation balance will potentially consist of all (or more) tax free component.
We are seeing many people that have just retired taking advantage of this opportunity to protect their legacy, and limit the death benefit tax (up to 16.5%) applicable when they pass and their benefits are paid to an adult child.
Case Study
We had a client in their 60s that recently retired.
They were divorced and had one adult child that was set to receive their superannuation upon passing.
By implementing a re-contribution strategy, we were able to save potentially $61,000 in death benefit taxes should the client pass.
4. Withdrawal from super
This strategy is important from an estate planning perspective.
Withdrawing superannuation benefits to remove any potential death benefit tax.
Case Study
We had a client that is over 75 years of age that has cancer.
They have four children whom will inherit the superannuation benefits upon their passing.
The client has over $40,000 in potential death benefit taxes.
Given their age, health and situation, we were able to move these benefits before they passed, saving the family $40,000 in potential death benefit taxes.
5. Managing Capital Gains
If you sell an asset for more than you paid for it, that's a capital gain. And if you sell it for less, that is considered a capital loss.
Over the last 12 months both the property and share markets have reached record highs.
This has resulted in large capital gains liabilities for many.
There are a number of ways to manage your capital gains tax.
holding onto an asset for more than 12 months - where you are entitled to a 50% discount on your CGT.
offsetting your capital gain with capital loses - capital losses from current or prior years can be used to reduce a capital gain.
revaluing a residential property before you rent it out - you will only be liable for CGT on the capital gain you make from that point forward.
taking advantage of small business CGT concessions - there are a range of exemptions and concessions available.
Increasing your asset cost base - you are entitled to include not only the the purchase costs, but also any associated costs of acquiring and disposing of it.
6. Pre-paying interest/ expenses
We are seeing many people pre-pay deductible expenses.
Whether that is interest on their investment properties or those who are self employed pre-paying rent and other deductible expenses.