As we approach the end of the financial year, now’s a good time to make sure you have your super and tax planning in order. Here are some pointers though we encourage you seek advice from a financial adviser, accountant or tax agent as these may not be appropriate for your individual circumstances.
Tax-deductible super contributions
You may be eligible to claim a tax deduction for your personal super contributions. In the past, you could only claim the deduction if you earned less than 10% of your income from employment. But from 1 July 2017, deductions for personal contributions can also be claimed by employees. Your eligibility can be affected by your age, sources of income and the level of salary sacrifice and certain other employer contributions made for you. To claim a deduction, you must give a notice to the Trustee of your super fund and have it acknowledged. Personal deductible contributions count towards your annual before-tax contributions cap of $25,000 per financial year. Any contributions made above these limits will attract additional tax.
Salary sacrifice to top up your super
Salary sacrifice is an arrangement where part of your pre-tax wage or salary is paid into your super account instead of being received as take-home pay. It could boost your super and you’ll potentially pay less tax than if taken in your pay packet. Talk to your employer about setting up salary sacrifice arrangements. Salary sacrifice contributions also count towards your annual before-tax contribution cap of $25,000 per financial year.
Consider a one-off contribution
After-tax super contributions are made from money on which you have already paid income tax and won’t be claiming a tax deduction on. The annual limit for after-tax contributions is currently $100,000 if your total superannuation balance is below $1.6 million at the start of the financial year. In certain circumstances, you may be able to bring forward three years of after-tax contributions into one year, contributing up to $300,000. Eligibility depends on having not triggered the rule in the previous two years and your total super balance being below $1.4 million at the start of the financial year. Investment earnings within your super accumulation account are taxed at up to 15%, compared to your marginal tax rate which applies to investments you may hold outside of super. You need to consider your marginal tax rate.
In the 2017/18 financial year, if you are a low to middle income earner, aged under 71 and with less than $1.6 million in super, you may be entitled to a government co-contribution by adding $1,000 to your super from after-tax money. If you earn less than $36,813, you may be eligible for the maximum $500 co-contribution (this reduces as your income rises up to $51,813 whereupon it is zero).
Spouse super contribution tax offset
If your spouse or partner’s assessable income is less than $40,000 in a financial year, you may be able to claim a tax offset, up to $540, when you make super contributions on behalf of your spouse. The maximum offset is available if your spouse’s assessable income is less than $37,000.
First home buyers
You may be able to make voluntary superannuation contributions to use towards a deposit for your first home under the First Home Super Saver Scheme (FHSSS) starting from 1 July 2017. Voluntary contributions you make, plus associated earnings, can be accessed from 1 July 2018 subject to meeting eligibility criteria. Whether using concessional or non-concessional contributions, the total amount of contributions you can withdraw is capped at $15,000 a year (or a maximum of $30,000 in total). Superannuation Guarantee contributions, as well as contributions that don’t count towards or are in excess of the contribution caps, cannot be accessed under the FHSSS as part of your deposit.
If you are aged 65 or more and planning on downsizing your family home of at least ten years to contribute up to $300,000 from the sale proceeds to superannuation, please note that this only applies for sale contracts signed after 1 July 2018. Downsizer contributions do not count towards your before or after-tax contribution caps or caps on contributions for total superannuation balance. More information is available at ato.gov.au.
Be careful with annual limits or seek advice – as annual limits apply to the amount you can add to your super each year, it is important to consider how much you have already added to your account (or accounts) during the financial year when deciding which strategies can work for you. If you’re thinking about investing more in super before 30 June, we can help you decide which strategies are appropriate for you.
Prepay interest and other expenses – you may be able to prepay the interest on a personally held investment property or investment portfolio. You may also be able to pay your income protection policy in advance.
Investment property expenses – keep records of expenses such as repairs and maintenance, rates and water charges, insurances, agent and advertising fees. Potentially bring forward repairs prior to 30 June.
Make a donation– first make sure the charity is a deductible gift recipient.
Self education, travel and vehicle expenses – the ability to claim work related expenses is stringent so make sure you keep receipts so you can determine whether they are tax deductible.
For small businesses, consider the following:
Defer income – you may be able to defer tax by either invoicing clients after 30 June or by deferring the receipt of funds until after 30 June if you use the cash method.
Prepay expenses – consider items like office supplies you know you will need and purchase them now.
Small business asset write-off – if you run a business with a turnover of under $10M, you can generally claim a deduction for assets purchased up to $20,000 rather than depreciating them over many years.
Keep Wealth Partners Pty Ltd (AFSL 494858). This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if the strategies and products are right for you.