End of Financial Year Tips
As we approach the end of the financial year, there are a few things you can do to boost your wealth and save tax if you take action before 30 June.
Over the past few years, the Government has minimised the number of ways you can reduce your tax.
These include;
Claiming tax deductions
For expenses directly related to earning taxable income.
Donate to charity
Those who donate money as a gift may be able to receive a tax deduction.
Pre-pay expenses
Many look to bring forward those expenses that are tax deductible. Prepaying up to 12 months of tax- deductible expenses may help bring the tax deduction forward to the current financial year.
For example. those that have an investment property may look to pre-pay the interest for next financial year or paying the next 12 months worth of premiums for your income protection policy.
Review your income packages
Consider salary sacrificing to reduce your taxable income. Salary sacrificing involves entering into an agreement with your employer to pay for some items or services straight from your pre-tax salary.
Individuals can salary sacrifice many things such as electronic devices, motor vehicles, childcare, private health insurance, super and so on.
Most employers will offer salary sacrifice to super but it is best to talk to you employer to see what other benefits they offer.
Salary sacrificing is available for anyone who earns more than the $18,200 tax-free threshold, however it is most suitable for individuals on mid to high incomes.
Make spousal contributions
Higher earning spouses can reduce their tax by contributing some of their super to their spouse’s super account, if they earn less than $37,000 this is a strategy you may want to consider.
Spouses can claim a tax offset of up to 18% (up to $540) on super contributions of up to $3,000 that are made on behalf of their non-working or low-income earning partner.
Review your Portfolio
We see many individuals that review their portfolio at this time to ensure it is still meeting their objectives. Many look at re-balancing or selling off under-performing investments & taking profits from investments that have performed well. However, re-balancing a portfolio can also crystallise capital gains tax. If your portfolio has generated capital gains, this may provide an opportune time to offset some gains with losses to minimise your overall tax liability. If you are unsure, seek professional taxation advice.
Make Super Contributions
Concessional super contributions (or before tax) are taxed at 15 per cent when they enter a super fund, as opposed to being taxed at the marginal rate (which can be as high as 47 %).
The types of concessional contributions individuals can make include salary sacrificing and personal deductible contributions. Salary sacrificing involves entering into an agreement with your employer to have some of your pre-tax salary paid directly to your super fund. There is no income tax on amounts that are salary sacrificed.
However, for many people that are employed June is sometimes too late to commence a salary sacrifice arrangement to reap the full benefits.
However, those that are self-employed have more flexibility & can make contributions to super claiming a full tax deduction. We have seen a large take up of this strategy from many who are self-employed & aged over the age of 57.
In addition, those that earn up to $50,564 have an opportunity to receive a Government co-contribution amount up to $500.
Every after-tax dollar you contribute, the Government will match it with their own payment of $0.50. This is known as the Government’s co-contribution. If you qualify & earn below $38,564 in 19/20 FY there is a possibility with a $1,000 contribution to receive the maximum Government co-contribution of $500. As your income increases the Government co-contribution reduces on a sliding scale.
Retirement Exemption
Small business owners who own assets with significant capital gains outside of their super account should time the sale of the assets to reduce the amount of CGT.
Speak to your tax professional to ensure you qualify.
The bring forward rule
The bring forward rule allows eligible Australians to make up to 3 years’ worth of non-concessional contributions in any single financial year, representing their annual non-concessional contributions cap over a successive 3-year period.
Plan to avoid ‘death tax’
Super death benefits are tax-free for a deceased member’s financial dependants. However, many members are not survived by financial dependants and are often survived by adult children who do not receive super benefits tax-free, for the taxable component of the lump-sum super death payment is usually subject to 15 per cent tax, on top of Medicare and other levies.
To minimise the chance of surviving adult children paying the ‘death-tax’, members should consider using strategies (re-contribution), keeping a separate pension accounts or even drawing down on their super before their death.
Everyone’s financial situation is unique, therefore some of these tips may not apply to your specific situation. We recommend you seek professional advice & speak to your Newcastle financial planners to understand the strategies that will significantly benefit you.