As we approach the end of the 2020 financial year, amid the chaos of the coronavirus, it is important not to forget end-of-year tax planning. We have highlighted some superannuation and other tax-related issues we think are worth considering.
If you have any questions, or you would like to explore opportunities in your own year-end superannuation and tax-related financial planning, please do not hesitate to contact us.
In addition to normal employer contributions, there are a number of ways to contribute to your super, and each way can have a different tax consequence. We have detailed below the various additional contribution methods.
- Personal tax-deductible contributions – You are allowed to make concessional super contributions of up to $25,000 per year. These concessional contributions include employer contributions, salary sacrifice contributions and personal tax-deductible contributions. If your employer (and salary sacrifice) contributions are well below this limit, you can make a personal deductible super contribution before 30th June and claim a tax deduction for the amount contributed. Remember to complete a ‘Notice of Intent’ form to ensure a tax deduction is valid.
- Concessional contribution carry-forward – If your total superannuation balance (i.e. the balance of all your super accounts added together) as at 30 June 2019 was less than $500,000 and you did not use all your concessional contribution cap in 2018-19 financial year, you may be able to carry the unused portion of last year’s cap forward and contribute in in the current financial year.
- Government co-contribution – If your total income is less than $53,563 and you derive at least 10% of your income from employment or self-employment, you can make a personal non-concessional contribution to super, and receive a Government co-contribution to your super account of up to $500.
- Spouse Contribution – People who contribute to super for their spouse may be eligible to receive a spouse contribution tax offset of up 18% of the amount contributed, subject to a maximum offset of $540. A spouse contribution tax offset is available where an eligible spouse for whom a contribution is made has annual income of less than $40,000.
- Non-concessional contributions – For those people approaching retirement, this is a great way to get money into the tax-advantage super environment prior to retirement. These contributions are made from after-tax income and from other savings. The maximum amount that can be contributed this year is $100,000, or up to $300,000 using the three-year-bring-forward rule. However, if your total superannuation balance at 30 June 2019 was between $1.4m and $1.6m, there are restrictions on how much you can contribute.
- First Home Super Saver Scheme – If you are planning to buy your first home and have made voluntary contributions to super since 1 July 2017, these contributions may be withdrawn for the purpose of buying your first home under the First Home Super Saver Scheme.
- Small Business Capital Gain Tax Concessions – If you are you running a small business and have sold the business or any of the businesses assets, you may be eligible to take advantage of the small business capital gains tax concessions. Not only do these concessions save you tax but may enable you to make additional contributions to superannuation without being constrained by the concessional and non-concessional contribution caps.
Note – If you are planning to make additional superannuation contributions, remember they need to be made before 30 June. Consider making contributions well in advance at the end of the financial year to ensure they are received by your super fund on time. Contributions made by electronic funds transfer, e.g. BPAY, are not deemed to have been made until the money appears in your super funds bank account. This could be some days after you initiate the transfer.
Other Tax-related Considerations:
In addition to the contribution methods mentioned above, we have also highlighted some other tax-related considerations below which may also be of importance to your end of financial year planning.
- Income Protection Insurance – We believe this to be the most important insurance you can have, as for most people your ability to earn an income is often your biggest financial asset and therefore should be protected. And the premiums, if paid from non-super sources, are tax deductible. For our clients who already have income protection, remember to give your accountant the income protection tax statement.
- Private Health Insurance – Having private health insurance can be costly but it continues to provide a number of benefits, including but not limited to: private health insurance rebate eligibility, avoiding the Medicare levy surcharge, and avoiding the lifetime health cover loading.
- Pay Off Your Deductible Expenses – Where possible, pay your tax-deductible expenses in advance, rather than periodically throughout the following financial year. Doing so prior to 30th June allows the tax deduction to be brought forward to this financial year. Owners of eligible small businesses should also know that the instant asset tax right off that was available last financial year of $30,000 has been increased to $150,000 as a result of the Federal government’s coronavirus incentives (note that eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million).
- Defer Income Where Possible – If income can be deferred until the end of this financial year, this is advisable. On the other hand, if your tax rate is likely to be higher in the 2019-20 financial year, consider bringing it forward into the current financial year where possible.
- Retiring Soon? If you are just about to retire, consider prolonging it until the new financial year if you can. That way any lump sums owing to you, such as annual or long service leave, will be taxed in the new financial year and likely at a lower rate.
- Managing capital gains – By selling assets that trigger a capital loss, the loss can be used to offset capital gains realised this financial year. Before recommending this strategy, make sure they do not breach the ‘wash sale’ provisions and it should be appropriate to sell that asset. Another strategy to consider is deferring the sale of assets that would give rise to a capital gain until a future financial year. This defers paying capital gains tax (CGT). This could also reduce the CGT payable if your taxable income is sufficiently lower in the future financial year (e.g. you retire) and/or you qualify for the general 50% CGT discount by extending the period of ownership beyond 12 months.
If you have any questions about the points raised, or if you would like us to review your circumstances or simply check that everything is on track, please don’t hesitate to contact us on 1300 354 355 to discuss these things in more detail.
This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice and seek the assistance of an authorised financial adviser before making any decision regarding any strategies mentioned in this communication.