As we approach 30 June, there are several end of financial year (EOFY) planning strategies you may wish to consider. Whether these are appropriate for you will depend on your financial situation, goals and objectives.
Maximise your superannuation contributions
Some of the biggest EOFY planning considerations centre on the fact that the superannuation contribution framework has changed.
For example, since 1 July 2017:
- The concessional contribution cap limit has dropped to $25,000pa, regardless of your age
- The non-concessional contributions cap limit has dropped to $100,000pa, and the maximum bring-forward rule has reduced to $300,000.
As such, it may be worthwhile taking one last look at your concessional and non-concessional contributions for this financial year.
Depending on your circumstances, you may be able to reduce your taxable income and further contribute to your wealth inside superannuation by using what remains of your annual concessional contribution cap limit in this financial year. If you are considering this strategy then be aware of the potential for an excess concessional contribution tax liability.
It’s important to understand:
- Your annual concessional contribution cap limit
- All contributions you, your employer/s and others make on your behalf and the date that they were (or, are expected to be) received by your superannuation fund.
Please note: Salary sacrificing arrangements may be established with consideration towards leaving a small buffer between all concessional contributions and the relevant annual concessional contribution cap limit. This buffer may help to mitigate the risk for a potential excess concessional contribution tax liability arising from contributions made by either you, your employer/s or others on your behalf.
Assess whether you have the capacity to make further non-concessional contributions to your superannuation fund in this financial year. These contributions will not reduce your taxable income however, they will further contribute to your wealth inside superannuation and if you meet certain criteria, you may also be entitled to the Government’s Co-Contribution.
Depending on your circumstances, superannuation can be a tax effective way to build wealth. For example, whilst in the accumulation stage, there is a maximum tax rate of 15% on income earned and 10% on capital gains that are held longer than 12 months.
Contribution Limits (Caps)
There are limits on the amount of contributions that can be made to super.
Two limits exist:
- The Concessional Contributions Cap; and
- The Non-Concessional Contributions Cap.
The concessional contributions cap generally includes any contribution for which a tax deduction has been claimed.
For 2017/18 the standard concessional contributions limit is $25,000 regardless of age. This limit is subject to indexation but may not increase each year.
If you exceed the concessional contribution cap then 85% of excess contributions can be refunded and is taxed at the your marginal tax rate including levies (less the 15% tax already paid). Tax penalties may apply. If the excess is not refunded it will also count against the non-concessional contribution cap.
Please note: From 1 July 2018, a new carry forward provision will apply for concessional contribution caps. This means that any unused portions of your concessional contribution caps can now be carried forward for up to five years as long as your total superannuation balance does not exceed $500,000. Once you exceed this threshold, the carry forward provision will no longer be available for you to use, however the $25,000 concessional contribution cap will still apply. The first year you will be entitled to carry forward unused amounts is the 2019-20 financial year. This will be beneficial for those who take career breaks or have lumpy income.
The Government co-contribution is available to certain individuals who make eligible personal contributions (being a personal contribution for which no tax deduction has been claimed) to a super fund. The Government co-contribution is payable to you if:
- you make a personal non-deductible contribution; and
- at least 10% of your total income is from eligible employment related activities, running a business or a combination of both; and
- your total income for the income year is less than $51,813 (2017/18);
- you lodge a tax return for the relevant year;
- you are under age 71 at the end of the income year in which the contribution is made;
- you do not exceed your non-concessional contributions cap in the relevant financial year; and
- you do not have a total superannuation balance equal to or greater than $1.6 million.
The co-contribution is paid at a rate of 50% of the eligible contributions with a maximum co-contribution of $500.
The maximum co-contribution of $500 is reduced by 3.333 cents for each $1 of income earned over $36,813, and cuts out when your total adjusted taxable income reaches $51,813 (thresholds for 2017/18).
Claim Spouse Contributions Tax Offset
If you make non-concessional contributions on behalf of your spouse to their superannuation fund you may be entitled to the spouse contribution tax offset. This may help reduce your tax bill and boost your spouse’s superannuation balance.
The spouse contribution tax offset is calculated as 18% of the lesser of:
- The total of your non-concessional contributions made on behalf of your spouse to their superannuation fund for this financial year
- $3,000, reduced by $1 for every $1 that your spouse’s assessable income, total reportable fringe benefits and reportable employer super contributions are more than $10,800 for this financial year.
For example, you may be entitled to the maximum spouse contribution tax offset of $540 in this financial year if the following occurs: your spouse’s assessable income, total reportable fringe benefits and reportable employer super contributions are $37,000 or less; and, you make a non-concessional contribution of $3,000 to their superannuation fund.
Managing capital gains
The timing of the sale of an asset is especially important when managing capital gains from a tax planning perspective as any capital gain will be assessable in the financial year that it’s crystalised.
In some cases, you may want to consider deferring the sale of an asset with an expected capital gain (and the applicable capital gains tax liability) to a future financial year. This may be beneficial if you expect that your income will be lower in the future compared to your income in the current financial year.
If you are considering selling an asset that has been held for less than 12 months, any capital gain made may be assessed in its entirety upon the sale. Whereas, if you were to defer the sale of an asset until it has been held for 12 months or more you may be entitled to the 50% capital gains tax discount.
If you have had any crystalised capital gains during the year, you could review whether it is appropriate to sell any investments that currently are at a loss. These losses would offset any capital gains made.
Remember, any decisions you make should be consistent with your investment strategy – as well as, take into consideration the implications of the sale of an asset for tax planning purposes.
Bring forward tax-deductible expenses
Your taxable income is your assessable income minus your tax deductions. By bringing forward a tax-deductible expense, you may able to reduce your taxable income for this financial year.
Depending on your circumstances, you may benefit from bringing forward the following tax-deductible expenses:
- Income Protection/Salary Continuance insurance premiums
- Donations to charities endorsed by the Australian Taxation Office (ATO) as ‘deductible gift recipient’ organisations
- Interest payments on investment loans
- And, the cost of maintenance and repairs to investment properties that are rented or available for rent (e.g. advertised for rent).
In addition, you may be eligible for deductions with regards to work clothing, tech devices used for work, work travel expenses, relevant educational expenses and working from home deductions.
It’s important to note that this may not be a worthwhile strategy if you expect your income in the next financial year to be lower than this year’s.
We have provided you with several EOFY planning tips; however, it’s important to seek professional advice as everyone’s financial situation as well as goals and objectives are different.
To find out more about any of the strategies discussed in this article please contact Carrick Aland Wealth Planning. An initial no-obligation consultation with our financial advisers is complimentary. If you’re interested in having a chat with our advisers call us on 07 4669 9800, or drop into any Carrick Aland office.
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