31 May EOFY – 22 tips and strategies for your personal tax, super & more!
You can never be too prepared when it comes to the end of financial year! There’s just on a month until June 30th and still plenty of time to act on the tips below, but you had better be quick! Why take action? To reduce your tax bill, ensure you meet the law where required and put yourself in the best position for the next financial year!
A key thing to keep in mind with your strategies for the end of this financial year is that the vast majority of the Budget announcements take effect from 1 July 2017. The major announcement that DOES take effect from 3 May 2016 is the maximum non-concessional contribution limit of $500,000. In fact this is effective 1 July 2007 – see more below. For a summary of the budget proposals click here.
But without further ado here is a summary of some key strategies for end of financial year coming up that we feel might be relevant for you. Please make sure you speak with your accountant or financial planner before implementing any of these. If you’re not sure where to start, we can help so please contact us.
Your Personal Tax Return
- Capital Gains. If you have sold any assets such as shares or property during the year and made capital gains, these capital gains are taxable. Consider selling any loss-making assets to offset the capital loss from these assets against the capital gains realised. Remember rental properties are deemed to be sold at the date of the exchange of the contract and not at settlement.
- Tax Deductible Expenses. Keep a proper summary of all your expenses such as car expenses, donations, uniforms, laundry, briefcase, computer, stationery, phone and internet, etc.
- Rental Property. Aim to bring forward your tax deductible expenses and defer your rental income. In particular, consider prepayment of expenses such as interest. Consider obtaining a Quantity Surveyors Report for substantial depreciation and capital works deductions for your rental property. This is the one most overlooked deduction by individuals.
- Superannuation Strategies. These can provide rebates on your tax bill so read below for a list of superannuation strategies.
- Concessional contributions. The limits for 2015/16 year are $30,000 if under 49 on 1 July 2015 and $35,000 if over. Remember that if you earn more than 10% of your income from employment then your personal contributions will not be deductible and you should aim to salary sacrifice. If you are over 65 then you need to meet work test.
- Non-Concessional Contributions. Speak with your adviser before making any non-concessional contributions before 30 June 2016. This is because a lifetime limit of $500,000 has been proposed in the Budget and this limit includes all non-concessional contributions made since 1 July 2007. There is a high risk of exceeding this limit if you do not have proper records of how much you have already contributed.
- Co-contributions. Do not forget the Government Co-Contribution of up to $500 if you make a non-concessional (personal contribution) of $1,000 and your assessable income is below $35,454.
- Superannuation Rebate. If your spouse’s assessable income is less than $10,800 then you can make a spouse contribution of up to $3,000 and receive a rebate of 18% or $540 offset against your tax.
- Planning your contributions. This is a good time to consider your superannuation contributions for 2016/17 year as well. If you wish to salary sacrifice into super for next year then speak with your employer now so you can set this up in time for the start of the new financial year
- Recontribution Strategy. This has been a popular strategy for people in pension and transition to pension phase. The recontributions are now subject to the lifetime limit of $500,000. As mentioned above, any non-concessional contributions should be carefully considered.
- Pension and Transition to Retirement Pension. Make sure that you have taken out the minimum pension based on your age. Also consider drawing your pensions on an annual basis instead of monthly as it may benefit from being in the superannuation account longer especially if you are unable to recontribute
- Advice. Make it a priority to see an adviser in the new financial year as there have been substantial changes proposed in the budget. The new lifetime limits and lower annual contribution limits mean that it’s now more important than ever to plan because the opportunities to top up your superannuation account at retirement are now very limited!
- Spouse splitting. This is now even more relevant in light of the tax free pension limits proposed under the budget. So as a couple, make sure you are building superannuation in both of your accounts.
As with all super strategies there are a few exceptions and complexities with these concessions so please speak to your tax adviser before implementing.
Self Managed Superannuation Fund (SMSF)
- Capital Gains. If you have realised capital gains then go through your portfolio for any investments that are carrying capital losses and consider selling these before 30 June 2016 to offset the losses against the gains.
- Pensions. Ensure the correct minimum pensions have been paid. Drawing maximum pensions and recontributing before 30 June may no longer be a suitable strategy
- Investment Property. If you have purchased investment property in your SMSF using borrowed funds then carefully review your funding requirement as the new contribution limits may impact your ability to repay the loan balance.
- Liquidity. Carefully review the liquidity of your SMSF and in particular, the ability to pay death benefits. This is even more relevant with the lifetime limits proposed on non –concessional contributions
- SMSF expenses. Ensure that all SMSF expenses paid personally by yourselves have been accounted for as contributions and that you have not inadvertently tripped the contribution limits
- Member Life Insurance. SMSF trustees are obliged to consider the life insurance requirements of members. If not done then this should be on your list of things to do immediately as fines apply for non-compliance with superannuation rules.
- Review your investment strategy and investments. If market returns have moved your asset allocations outside of the investment strategy restrictions you need to readjust the allocation. If you do not do this, your fund may be non-compliant.
- Superannuation and Insurance. As a result of proposed changes to contribution limits, you need to review any insurance arrangements as part of super. It may be preferable in some cases to hold the life insurance outside of super
The most important piece of advice: look at this time as an opportunity to discuss your financial future with your financial planner, accountant and other specialists; not just as a time to minimise your tax. Take the time to consider your superannuation, insurance, investments and retirement plan as well as your tax return. If you need tax advice, financial planning advice around super and/or SMSF or tax returns/audits prepared for your SMSF we can organise that for you as we now have those services in-house. Please submit a contact request or call us on 02 9633 5530.
There are plenty more tips, ideas and strategies if you run a small business (less than $2 million turnover per annum) or if you’re getting close to, or in, retirement so please let us know if you need a hand minimising your tax and setting yourself up properly for the coming financial year.