Over the last few weeks we have been working closely with our advisory clients assisting them with end of financial year tactics. I provide a list below of some of the tactics that we have been implementing. It is worth taking a couple of minutes now to see if you can benefit from any of these.
Additional tax-deductible super contributions
If you are under 65 and generate some taxable income (i.e. working), you can make up to $25,000 of tax-deductible superannuation contributions per year (if you are aged between 65 and 74 you must meet the work test). This is called the ‘concessional contributions cap’ (“CCC”).
Included in the CCC is any contributions that your employer has made on your behalf (i.e. the mandated Superannuation Guarantee Charge of 9.5% p.a.). If you have any insurance policies which are owned inside super and you pay for the premiums personally, then this amount is also included in the CCC (if in doubt, speak to your insurance adviser).
This year (2017/18) is the first year that both employees and self-employed persons can make a personal super contribution from their personal savings and then claim a tax deduction for this contribution in their personal tax return. If you do this, you will need to complete a ‘notice of intent’ and give it to your super fund.
For example, if you expect employer will contribute say $12,000 into super for the year ending 30 June 2018, then you can make an additional contribution (from personal savings) of $13,000 and claim a tax deduction for it. If your income is less than $200,000, then this $13,000 contribution will only attract tax at the rate of 15% within super (thereby possibly saving you 32% or over $4,000 in tax – which is the difference between the super fund tax rate and your marginal tax rate).
Getting some more wealth inside super
If you are under the age of 65 (or between 65 and 74 and meet the work test), it might be worth contributing some of your savings (in your personal name) into super. This is called a Non-Concessional Contribution (NCC). The NCC cap for people with less than $1.4 million of super is $100,000 per year or $300,000 in one lump (bring forward the next three years cap).
Super is obviously a very tax-effective environment (nil tax whilst in pension phase). Therefore, if you are approaching retirement, often it makes sense to shift wealth into super. Obviously, this depends on the value of other investment assets that you may have – you probably shouldn’t put everything into super.
Prepaying interest in advice
If you expect that your taxable income will be substantially lower next financial year (2018/19) and you have investment loans, then perhaps pre-paying next year’s interest in advance might help reduce your tax burden this year. You will need to switch your loan to a fixed rate product (banks normally offer discounted fixed rates for this).
But make sure that you do your sums to ensure its worthwhile. Many people over-estimate the benefit of pre-paying interest. Contact us if you which to discuss this further.
Spousal contributions
If your spouse will earn less than $40,000 this financial year then you might consider making a contribution of up to $3,000 into their super account. If you do this, you can obtain a tax offset of up to $540 (it’s a tax offset, not deduction, which means whatever tax you are liable for is reduced by up to $540). See here for more information on this.
Did you make any capital gains during the year?
If you crystallised a taxable capital gain during this financial year then you might consider whether you should sell any under-performing assets that are in a capital loss position to reduce your capital gain. This is particularly relevant with shares and managed investments. June is a good time to sell any investments that haven’t turned out as well as you had hoped.
Prepaying any tax-deductible expenses
Consider pre-paying any tax-deductible expenses such as interest on investment loans, insurances, repairs to investment properties, tax-deductible fees, rent and so on. Again, this is valuable if you expect your taxable income to be lower next financial year.
Trying to even up your and your spouse’s super balances
It may be advantageous to try and equalise your and your spouse’s super balances to maximise the chances of you staying under the new $1.6 million pension cap. To do this, the spouse with the higher super balance would draw a pension from their super. And the spouse with the lower balance would contribution the amount drawn into their super account as a non-concessional contribution. Essentially, shifting super from one spouse’s account into the other.
You can only consider doing this if you have reached your preservation age (which is between 55 and 60 if you were born before 30 June 1964 – or 60 if born after this date). Also, if you are still working, you need to consider whether the recent changes to the ‘transition to retirement’ rules render this strategy inefficient.
If you operate a business, buy any equipment that costs less than $20,000
The government will allow small businesses to write-off the cost of any equipment that costs up to $20,000 (instead of depreciating it). Therefore, if you need any plant or equipment, buy it before 30 June 2018. See here for more.
Wills and power of attorneys are up-to-date?
This isn’t strictly an end-of-year issue but I like to sneak this one in because so many people don’t have a will!
Not having a will makes things more difficult for anyone that you leave behind. If you have some monies to leave to your beneficiaries, you can do that very tax-effectively with the right will. Also, if you have children, guardianship will need to be addressed in your will.
If you need help, contact our office for a referral to a pragmatic lawyer that will make the whole process of arranging a will as painless as possible (same guy that I use personally).
Make sure you get personal (independent) advice
I am sure that you understand that the above is a summary only and these strategies may or may not be appropriate for you. There are just too many considerations and variables that you need to take into account to list in this blog. Therefore, it is very important that you do not act on this information without first getting professional (independent) advice. Of course, we’re here to help.
