End of Financial Year Check-List
Are you ready for the End of Financial Year?
The following points are a reminder of actions individuals might need to take before 30 June;
- Tax deductions for personal contributions
- Government co-contributions
- Spouse contribution
- Review salary sacrifice arrangements
- Top Up Your Super (Non-Concessional Contributions – NCC)
- Allocated Pension Drawdowns
- Imputation Credits
- Superannuation Income Splitting
- Prepay Deductible Expenses
- Employment Terminations
- Manage Capital Gains Tax
- Work Test Exemption for Retirees
- Unused Concessional Contributions
- Downsizing Contributions
As always please do not hesitate to contact us for any assistance.
Tax deductions for personal contributions
From the 1st July 2017, the requirement that an employed individual has to earn less than 10.0% of their income from employment related activities to qualify to claim a tax deduction for a personal super contribution no longer applies. Broadly, this means that any individual who is eligible to contribute to super will be able to claim a tax deduction for their personal super contributions. There are limits as to how much you can contribute and claim as a deduction. You cannot contribute any more than $25,000 during the 2018/19 financial year. It is important to remember that this figure includes any super guarantee or salary sacrifice contributions. If you exceed this limit, the additional amount will be included in your assessable income and taxed at your marginal tax rate. You will also attract an excess concessional contribution charge. At the same time, you will receive a refund of the 15% contribution tax that would have already been applied to your contribution. It is important to remember, that you must complete a “Notice of intent” or a “section 290 notice” to claim a tax deduction and lodge this with your super fund. This must be done before you lodge your income tax return for the income year in which the contribution was made. The cap remains $25,000 during the 2019/20 financial year.
The superannuation co-contribution is a Government initiative to help eligible individuals boost their super savings for the future. If you are a low or middle-income earner, you may be able to take advantage of the super co-contribution payment by making eligible personal super contributions to your super fund. You are eligible to participate in this initiative if you earn 10% or more of your income from carrying on a business, eligible employment or a combination of the two. The maximum Government payment of $500.00 will be available for a non-concessional contribution of $1,000 or more by an individual who earns below $37,697. The co-contribution phases out completely once total income reaches $52,696. The individuals eligibility for the co-contribution reduces by $0.03333 per dollar of income in excess of the lower threshold. Individuals must also be under the age of 71 at the end of the relevant year and meet the work test for any contributions made after reaching the age of 65. It is important to remember, your contribution needs to be applied to your account on or before the 30th June 2019.
A tax offset of up to $540.00 may be available for a spouse superannuation contribution of up to $3,000.00. The tax offset is reduced where the receiving spouse’s income (assessable income + salary sacrifice contributions + reportable fringe benefits) exceeds $37,000, cutting out at $40,000. The contribution rules and caps are treated on the receiving spouse. Therefore, no work test applies where the receiving spouse is under the age of 65. This is a great opportunity to reduce your tax bill and improve your overall retirement savings at the same time.
Review salary sacrifice arrangements
Even during turbulent investment markets, salary sacrificing into superannuation is still an effective strategy as the tax saving between your marginal tax rate and the superannuation contributions tax rate of 15% could be significant. Furthermore, any earnings achieved by your superannuation program will be taxed at a maximum rate of 15% as opposed to your marginal tax rate. Where an individual earns in excess of $37,000 (tax neutral position or thereabouts) and has other income sources available to them, an opportunity exists to sacrifice a portion of their income. Where a bonus is obtained and payable before the end of the financial year, consideration could be given to applying a portion of the same to your superannuation program. However, the election to salary sacrifice into super must be made before any income and/or bonus is derived. It is important to remember that the contribution limits outlined in point 1 still apply and allowances need to be made for any superannuation guarantee contributions (9.50% post 1st July 2014) and/or additional employer contributions made during the financial year. Furthermore, if you participate in an employer sponsored superannuation scheme and your employer pays for your insurance costs, these contributions are counted towards the limits previously outlined. While it may be too late for this financial year, it is never too early to start planning for next year.
Top up your super (Non-Concessional Contributions NCC)
If you have some surplus cash sitting in a bank account earning very little interest, consideration should be given to topping up your superannuation to create greater wealth for retirement purposes. It is important to remember that any money you apply to your superannuation account will be preserved until such time as you meet a condition of release. During the 2018/19 financial year, the non-concessional contribution limit is $100,000 per annum or a maximum of $300,000 over a 3 year period using the bring-forward cap. From 1st July 2017, the amount of the bring-forward that can be triggered is dependent on your Total Super Balance (TSB) and reduces where this balance exceeds $1.4m.
The basis of the imputation system is that shareholders or unit holders who receive dividends or distributions are entitled to a tax offset for the tax paid by the company or trust on that income. This credit is extremely valuable due to it’s tax advantage status for all investors, even those who do not pay tax as the excess imputation credits can be refunded. If an individual is not required to lodge a tax return, they can complete a form requesting the ATO to refund the franking credits. If you have any direct shares and/or managed funds in place, please ensure that you consider your entitlements in this area.
Superannuation contribution splitting
Superannuation contribution splitting is a strategy that involves splitting certain superannuation contributions with a spouse. It allows a single income family to share their superannuation benefits in a similar way to dual income families. An individual can split concessional contributions to an account held by their spouse, either within the same fund or any other complying superannuation fund, subject to the fund rules. Members can apply to split 2017/2018 contributions before 30th June 2019. Two of the key benefits of this strategy is to: A) Access two tax free thresholds from preservation age to age 59, effectively doubling the amount that is able to be withdrawn as a tax free lump sum ($205,000 x 2 = $410,000) and B) To shelter assets that will form part of Centrelink’s asset test. Due to the uncertainty surrounding contribution limits, this strategy may also offer some financial benefits at a future date.
Prepay deductible expenses
A tax deduction may be claimed for up to 12 month worth of interest prepaid on an investment loan on a rental property, margin loan on a share portfolio or managed investment, provided that the loan has the facility that allows this. In addition, the payment of other deductible expenses such as professional memberships or pre paying salary continuance/income protection insurance by 30th June 2019 will reduce taxable income.
Where an employee has the ability to choose his or her leaving employment date, they may be able to optimize the tax treatment of payments received. For example, in a redundancy situation, the amounts able to be received tax free are indexed at the 1st July each year and are based on years of “completed service” or terminating employment after the 1st July rather than before also means that marginal and concessional tax rates can be best utilized if little or no other income is earned in that year.
Manage capital gains tax
Where there is a potential capital gains liability from selling an asset during the year, it may be appropriate to sell another asset to crystallize a loss. Realising a loss allows individuals to offset capital gains and thus minimize or even eliminate a tax liability they may otherwise be facing. At the same time, this strategy may allow individuals to offload a low quality or under performing asset that has little likelihood of recovering in the short to medium term and to invest in a quality asset.
Work test exemption for retirees
Beginning from the 1st July 2019, a person who is age 65 or over can make voluntary super contributions without having to first meet the work test in the year the contribution is made. This is known as the work test exemption and is a once only opportunity. Broadly, the member can make voluntary contributions, both concessional and non-concessional in the year immediately following the year in which they last met the work test. However, the recent retiree must have a prior 30th June Total Superannuation Balance (TSB) of less than $300,000 to be eligible for this opportunity. Normal contribution restrictions apply.
Unused concessional contributions
Beginning in the 2018/19 financial year, a person can commence to accrue unused amounts of concessional contributions (CC) and carry forward these unused amounts. The first year a person can make additional CC’s from their unused amounts is in the 2019/20 financial year, provided their prior 30th June Total Superannuation Balance (TSB) was under $500,000.