With just a few weeks to 30 June, have you prepared financial year end? What changes do you need to know about? And what opportunities can you take advantage of?
For many people, end of financial year is a time when they discover that perhaps they’re not as financially well-organised as they need to be.
So here we’ve provided 20 tips for actions you can take before 30 June.
1. Be early
The first thing to note this financial year is that June 30 falls on a Sunday – so forget about doing any super contributions after Thursday 27 June as funds transferred from Friday 28 June are unlikely to hit an account before 1 July.
2. Boost your salary sacrifice
You may want to boost your salary sacrifice to super before 30 June – either by pre-electing to pay all or part of your salary or bonus into super. Please ensure that you set up the salary sacrifice of a year-end bonus before your bonus entitlement is confirmed by your employer. Remember, however, that everyone has a concessional contribution limit this financial year of $25,000.
3. Make personal deductible super contributions
If you earn less than 10% of your income from eligible employment (typically you’ll be self-employed or not employed), and are eligible to contribute to super, this can help you reduce tax in the current financial year. Remember if you intend to claim a tax deduction for your personal contributions, you need to provide a tax deduction notice to the fund. This is particularly important if you are planning to commence a Transition to Retirement pension.
4. Use super contributions to offset a capital gain
You may also be interested in making before-tax super contributions if you want to offset a large capital gains tax bill, perhaps from selling an investment property, managed funds or direct shares. This includes a capital gain if you have transferred assets from your personal ownership to a Self Managed Super Fund as an in-specie super contribution – you can offset any gain with a personal tax deduction if you are self-employed, meet the 10% maximum employment earnings test or are not employed. Please note that the market value of the transferred asset counts to your relevant contribution caps.
5. Consider after-tax contributions to super
Have you considered making non-concessional contributions to move investments out of your personal name (or company or trust) into super? This can be an effective strategy to minimise tax. If you are nearing age 65, then consider the timing of any after-tax contributions to take advantage of the “bring forward” provisions which enable you to contribute up to $450,000 into your super.
6. Collect the Government super co-contribution
Are you or your partner eligible for the co-contribution? And is this is a better option than a salary sacrifice contribution? Any working individual who earns less than $46,920 this financial year could be eligible. If you make an after-tax super contribution of $1,000 before 30 June, you could receive up to $500 from the government in super.
7. Collect the spouse contribution
If you contribute a minimum of $3,000 to your non-working or low income partner’s super before 30 June you could receive a tax offset of up to $540. If your spouse has assessable income (plus reportable fringe benefits and reportable employer super contributions) of less than $10,800 for the year, then you would be eligible for the maximum rebate. On a contribution of $3,000, that’s a guaranteed 18 per cent return.
8. Superannuation split
If you are a high income earner and have a spouse with a much lower superannuation balance than yourself, you may want to consider splitting 85% of your prior year’s concessional (pre-tax) contributions to them. You could get a tax break and your spouse gets a larger super benefit. There are several potential advantages with a contribution splitting strategy, particularly if Government proposals go ahead in relation to taxing higher balance accounts. Remember, you can only split contributions made in the previous year. For example, contributions made during the 2011/2012 financial year can only be split during the 2012/2013 year.
9. Update your SMSF Investment Strategy
If you’re the Trustee of an Self Managed Super Fund, now is a good time to review and update your Investment Strategy and ensure all investments have been made in accordance with it, and the funds deed. You now also need to demonstrate that you have considered the insurance needs of Fund members.
Transition to Retirement pensions
10. Ensure you meet the minimum pension
Are you drawing a Transition to Retirement pension from your fund? If so, make sure you have drawn at least the minimum amount required. In the current financial year, the minimum was 3% (and the maximum 10%) of the value of your account balance at the start of the financial year. It will be 3% next financial year.
11. Opportunity to access additional retirement savings
Transition to retirement (TTR) pensions are subject to a maximum annual pension payment equal to 10% of the pension account balance. This maximum is not pro-rated, so if you needed to access additional funds, a TTR pension established before 30 June may allow you to access up to 20% of their retirement savings in a short period.
12. Review your investments
This is a good time to review your investments to determine if you have assets that are no longer appropriate or in which you are over- or under-weight for your optimal asset allocation. You may have investments that have losses that it makes sense to sell – or perhaps you have carry-forward capital losses – to help you minimise net capital gains.
Remember that if you receive managed fund distributions, you may receive realised capital gains – as well as income – as part of the overall distribution amount. You are liable to pay tax on these regardless of whether you reinvest the distribution or receive it as cash. You can apply any capital losses you may have to reduce these gains.
When making changes to your investments, be wary of ‘wash sales’. A wash sale is the sale and immediate repurchase of the same investment, with the intention being to either crystallise a capital loss or reset the cost base of the investment. The tax office warns that this is tax avoidance and significant penalties will apply to such arrangements.
13. Consider timing of new managed fund investments
If you are planning on investing in managed funds, you may want to delay this until after 30 June to avoid receiving part of your money back immediately as a distribution – which is taxed as income.
14. Claim investment expenses
Expenses incurred by an investor in the course of earning assessable investment income may be tax deductible and not only reduce your tax liability for 2011/2012 but also your PAYG instalment rate for the upcoming financial year. This may include ongoing advice service fees.
15. Pre-pay investment loan interest
If you have borrowed money for an investment, or plan to do so before 30 June 2013, then this strategy could benefit you – it’s particularly tax-effective if you have assessable income in the top marginal tax bracket.
Where your borrowing is used for investments that will generate assessable income, you can claim a tax deduction for the interest payable on your loan. By pre-paying the interest for 2013/14 on your investment loan now, you may be able to claim a deduction for that interest in your 2012/13 tax return. However, remember that this locks you into your loan for 12 months with break costs if you want to change your loan arrangements.
General tax deductions
16. Pre-pay income protection premiums
Protecting your income is the foundation of building wealth. As you income protection premiums are tax-deductible, you may wish to your premium for the next 12 months before 30 June to reduce your income tax this financial year.
17. Reduce capital gains tax (CGT)
If you have sold an asset – like shares or an investment property – in the last financial year and made a capital gain you will be taxed at 50% of the gain at your marginal tax rate. You may want to consider strategies to reduce capital gains tax.
As discussed above, maybe you have poorly performing assets that you could sell before June 30 and use this loss to offset your gain, reducing the CGT payable. Or perhaps you have a capital loss that you’ve ‘carried forward’ from a prior year. Also discussed above was the opportunity to reduce a capital gains tax liability is by making concessional contributions to superannuation which reduce your assessable income.
18. Pre-pay investment property expenses
You may want to consider pre-paying any expenses on your investment property for next year before 30 June. With all your expenses, you need to ensure that you can substantiate your claims. And remember if you have a depreciation schedule prepared by an accountant, you could claim this as a tax deduction.
19. Maximise your deductions
Make sure you claim all potential work related expenses. These may include mobile phone costs, subscriptions, computer equipment, calculators, briefcases and technical books. Note that you can claim up to $300 of eligible work related expenses without receipts. Self education expenses can also be deducted provided your study is directly related to maintaining or improving your current skills or is likely to increase your income from current employment (though note that the rules are changing – see #20). Fees paid to a registered tax agent to prepare your tax returns are allowable in the tax year the fee was paid. Ongoing financial advice fees may also be deductible.
20. Bring forward education expenses
Self Education Expenses are changing. Currently there is no limit on eligible self-education expenses that can be claimed as a deduction. However, from 1 July 2014, there will be a limit of $2,000 per person per financial year. If you are considering entering education or currently in education, you may wish to bring forward the enrolment or expense if it is expected to cost more than $2,000 a year. For those at university, the HECS/HELP discount for upfront payments (of 10%) and the voluntary repayment bonus of 5% is ending on 1 January 2014.
Seek advice from professionals
If you would like to improve your tax-effectiveness, perhaps you could seek advice from professionals for your complex financial decisions. If you’re a business owner, talk to your accountant about ways to extract profits from your business at the smallest tax cost. And maybe it’s a good time to talk to a financial adviser about improving and protecting your business and personal wealth.