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EOFY planning: Tax and superannuation strategies

Written and accurate as at: Jun 05, 2017 Current Stats & Facts

As we approach 30 June, there are several end of financial year (EOFY) planning strategies you may wish to consider. Whether these are appropriate for you will depend on your financial situation, goals and objectives.

Some of these strategies may help:

1. Reduce your tax bill

2. Build wealth for retirement

3. And, further your philanthropic endeavours (support of charitable organisations).

 

Maximise your superannuation contributions
As we discussed in our recent article, ‘Capturing the super cap limit deadline’, some of the biggest EOFY planning considerations centre on the fact that the superannuation contribution framework is changing.

For example, from 1 July 2017:

  • The concessional contribution cap limit will drop to $25,000pa, regardless of your age
  • The non-concessional contributions cap limit will drop to $100,000pa, and the maximum bring-forward rule will reduce to $300,000.

As such, it may be worthwhile taking one last look at your concessional and non-concessional contributions for this financial year.

Concessional contributions
Depending on your circumstances, you may be able to reduce your taxable income and further contribute to your wealth inside superannuation by using what remains of your annual concessional contribution cap limit in this financial year. If you are considering this strategy then be aware of the potential for an excess concessional contribution tax liability.

It’s important to understand:

  • Your annual concessional contribution cap limit
  • All contributions you, your employer/s and others make on your behalf and the date that they were (or, are expected to be) received by your superannuation fund. 

Please note: Salary sacrificing arrangements may be established with consideration towards leaving a small buffer between all concessional contributions and the relevant annual concessional contribution cap limit. This buffer may help to mitigate the risk for a potential excess concessional contribution tax liability arising from contributions made by either you, your employer/s or others on your behalf.

Non-concessional contributions
Assess whether you have the capacity to make further non-concessional contributions to your superannuation fund in this financial year. These contributions will not reduce your taxable income however, they will further contribute to your wealth inside superannuation and if you meet certain criteria, you may also be entitled to the Government’s Co-Contribution.

Depending on your circumstances, superannuation can be a tax effective way to build wealth. For example, whilst in the accumulation stage, there is a maximum tax rate of 15% on income earned and 10% on capital gains that are held longer than 12 months.

 

Claim spouse contributions tax offset
If you make non-concessional contributions on behalf of your spouse to their superannuation fund you may be entitled to the spouse contribution tax offset. This may help reduce your tax bill and boost your spouse’s superannuation balance.

The spouse contribution tax offset is calculated as 18% of the lesser of:

  • The total of your non-concessional contributions made on behalf of your spouse to their superannuation fund for this financial year
  • $3,000, reduced by $1 for every $1 that your spouse’s assessable income, total reportable fringe benefits and reportable employer super contributions are more than $10,800 for this financial year.

For example, you may be entitled to the maximum spouse contribution tax offset of $540 in this financial year if the following occurs: your spouse’s assessable income, total reportable fringe benefits and reportable employer super contributions are $10,800 or less; and, you make a non-concessional contribution of $3,000 to their superannuation fund.

To see a working example of the spouse contribution tax offset take a look at our Superannuation Module.

 

Managing capital gains
The timing of the sale of an asset is especially important when managing capital gains from a tax planning perspective as any capital gain will be assessable in the financial year that it’s crystalised.

In some cases, you may want to consider deferring the sale of an asset with an expected capital gain (and the applicable capital gains tax liability) to a future financial year. This may be beneficial if you expect that your income will be lower in the future compared to your income in the current financial year.

If you are considering selling an asset that has been held for less than 12 months, any capital gain made may be assessed in its entirety upon the sale. Whereas, if you were to defer the sale of an asset until it has been held for 12 months or more you may be entitled to the 50% capital gains tax discount.

If you have had any crystalised capital gains during the year, you could review whether it is appropriate to sell any investments that currently are at a loss. These losses would offset any capital gains made.

Remember, any decisions you make should be consistent with your investment strategy – as well as, take into consideration the implications of the sale of an asset for tax planning purposes.

 

Bring forward tax-deductible expenses
Your taxable income is your assessable income minus your tax deductions. By bringing forward a tax-deductible expense, you may able to reduce your taxable income for this financial year.

Depending on your circumstances, you may benefit from bringing forward the following tax-deductible expenses:

  • Donations to charities endorsed by the Australian Taxation Office (ATO) as ‘deductible gift recipient’ organisations
  • And, the cost of maintenance and repairs to investment properties that are rented or available for rent (e.g. advertised for rent).

In addition, you may be eligible for deductions with regards to work clothing, tech devices used for work, work travel expenses, relevant educational expenses and working from home deductions.

It’s important to note that this may not be a worthwhile strategy if you expect your income in the next financial year to be lower than this year’s.

 

Moving forward
We have provided you with several EOFY planning tips; however, it’s important to seek professional advice as everyone’s financial situation as well as goals and objectives are different.

If you would like further information on any of the strategies discussed in this article please contact us.

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