As we approach the end of financial year, hopefully you have enough energy left to cartwheel over the line like my daughters! But before you get there it is good to conduct a quick check to ensure there are no opportunities you are missing out on to minimise your income and taxes in this financial year, and to maximise your longer term planning outcomes. Even if you are only able to defer your tax liabilities for a further year, that provides you with the opportunity to use these funds for your benefit for an additional year courtesy of the ATO. If all you do with these funds is deposit them into your mortgage (if you have one), you could see a return of 5% over the year with no risk – a pretty good return in the current market environment.
So what are the big planning opportunities?
- If you are running a practice, are there expenses that can be prepaid in the current financial year? That will bring these expenses forward into the current financial year and so reduce your taxable income.
- If you have investment debt, are you able to pre-pay the interest on this for the next 12 months and bring the deduction forward into this year? This would also bring this expense forward into the current year and so reduce your taxable income
- If you are self-employed, are you able to make a contribution to super that you can claim as a tax deduction? If you are between 50 and 65 in the current financial year you can make personal contributions of up to $35,000 that you can then claim as a tax deduction. If you are under you can make contributions of up to $30,000. These contributions will only be taxed at 15% or 30% in your super fund (depending on your income), but this is significantly below the top marginal tax rate.
- If you are employed, the same contribution limits apply but your employer must make the contribution on your behalf. If you are a long way below your cap at this point in the year you may be limited in your ability to reach this level (unless for instance you receive a bonus). You can however begin planing now for next year.
- If you have a Spouse on a low income, you may also wish to make a super contribution on their behalf. If you contribute $3,000 or more and their income is below $13,800 you will be eligible for a tax rebate of up to $540. This is not a massive amount but you may as well take advantage of what is essentially free money from the government.
- Spouses on slightly higher incomes may be eligible for the superannuation co-contribution. If their income is below $50,454 and they make at least $1,000 in personal non-concessional contributions (after tax), they will be eligible for a contribution of up to $500 from the government.
Other planning issues you may need to consider, particularly in relation to Self Managed Super Funds:
- If you have a fund that has a pension account you need to draw a minimum pension prior to June 30. This minimum is based on your age and the account balance at the point the pension commences (or at the start of the financial year if it commenced in a prior year). If this minimum drawing is not met then the ATO will deem that no pension exists and the earnings on the investments will be taxable. There may be other issues that arise from this too.
- If you have an SMSF that has collectibles, the transitional period for the new rules expires on July 1, 2016. If you have collectibles and you are not aware of these new rules I recommend you to speak to your advisor urgently, or feel free to call me and discuss your concerns.
- With the proposed changes to superannuation including caps on the amount that can be transferred into pension accounts, you may wish to investigate splitting your concessional (pre-tax) contributions to super. This strategy is particularly relevant if you are some years off retirement but your family’s super assets are largely in one name, and you are at or beyond an account balance of $1 Million.
While certainly not an exhaustive list, this does highlight some of the major opportunities. Unfortunately there are limits on what can be done, particularly if you are an employee. These limited opportunities mean that it is even more important to have a proper plan and to structure your business and investment assets in a manner that is flexible and tax effective to maximise the opportunities available to you.
If you would like to talk to us and obtain a Second Opinion on your current position and plans, click here to contact us.
When was the last time you stopped and considered your overall financial position? If you haven’t done so for some time I invite you to complete our 9 Point Financial Health Check. Upon completion we will email you a personalised report, together with a suggested course of action if we feel it is warranted. Click here for your checkup.
Disclaimer: Western Pacific Financial Group Pty Ltd ABN 35 050 159 156 AFSL 224662 is a company within the IOOF group. This is general advice and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should determine whether it meets you needs or seek advice from a financial adviser. Examples are illustrative only and are subject to the assumptions and qualifications disclosed.
