While 30 June is rapidly approaching (and falls this year on a Saturday), investors still have time to take advantage of end of financial year (EOFY) tax concessions and other opportunities.
1. Claim up to $20,000 per asset as a tax deduction
If you are self-employed or have a small business with an aggregate annual turnover of less than $10 million, you may be able to immediately deduct the cost of a depreciating asset that you purchase for less than $20,000. In order to access the deduction, the asset must be income producing for your business, purchased between 7:30PM on 12 May 2015 and 30 June 2018, and installed and ready for use before the end of the financial year. There is no limit to the number of eligible purchases that can be claimed.
2. Review your portfolio for tax efficiency
Investors should review their portfolios and clean up those loose ends. If you have carried forward losses, these can be offset against capital gains to minimise tax payable. Be aware that the Australian Tax Office (ATO) has issued warnings against wash sales, which is where an asset is sold and repurchased with the intention of minimising tax payable. Ensure transactions are investment driven, not tax driven.
3. Claim a deduction of up to $25,000 for personal contributions to super
Before 1 July 2017, you could only claim a tax deduction for making a before-tax contribution to your super if you earned less than 10% of your income from salary and wages. Now, employees can enjoy a potential tax deduction too.
By making a before-tax contribution into your super, you could boost your retirement nest-egg, and by claiming a tax deduction, you could reduce your taxable income.
The super contribution is generally taxed at 15%, not your marginal tax rate, which could be up to 47% (including the Medicare levy). Note that higher income earners (with income from certain sources above $250,000 in FY18) may have to pay an additional 15% tax on concessional contributions.
This strategy could suit you if your employer doesn’t allow you to salary sacrifice or if you’d rather not salary sacrifice because it reduces other employee entitlements, such as Super Guarantee contributions. And even if you are salary sacrificing, you might use this strategy to contribute the full amount of concessional contributions, if your current salary sacrifice agreement, together with any additional employer contributions before 30 June won’t quite get you there. The cap for FY18 is $25,000.
Finally, you’ll need to meet the work test if you’re 65 and over, and you wish to use this strategy, and everyone will need to ensure they submit the correct paperwork in order to claim the deduction. As this is the first year this strategy is available, regardless of your employment arrangements, it is advisable you speak to your super fund and your accountant or financial planner to ensure you optimise your contribution and follow the correct process.
4. Make a spouse contribution – new higher income limits for receiving spouses
If your spouse earns under $40,000 each year, their super could probably benefit from a top up. If you contribute to their super, you may receive an offset of up to $540 in your tax return.
Before 1 July 2017, this tax offset was only available to couples where the spouse earned less than $13,800 per annum. With the threshold increased to $40,000, more people will be able to help increase their spouse’s retirement savings while potentially improving their own tax position.
5. Receive a co-contribution by making a personal super contribution
If you earn less than $51,813 in FY18 (before tax), of which at least 10% is from eligible employment or self-employment, you could receive a super top up from the Government when you make a personal after-tax contribution to your fund.
If you earn less than or equal to $36,813, you could contribute $1,000 to super and receive the maximum co-contribution of $500 (based on 50c from the government for every $1 you contribute). The amount of the co-contribution reduces as your earnings increase and cuts out entirely at $51,813. To receive the co-contribution, you will need to meet certain conditions, including a requirement to lodge a tax return for the year and be under 71 years of age at the end of the financial year.
If you are thinking of helping your child or grandchild build wealth for their future, you could assist them by giving them funds that they can contribute to super in order to receive the co-contribution. This will be preserved until they retire after their preservation age or meet another condition of release, but can have a powerful compounding effect over their lifetime.
6. Prepay interest on your investment loans
When you borrow money to make an investment that will generate assessable income, you are generally entitled to a tax deduction for the interest on the money borrowed.
Towards the end of the financial year, many investors who gear into property or shares will prepay their interest for up to 12 months (with the 12-month period ending before 30 June next year). Doing so will allow you to lock in the interest rate you pay for next financial year and will bring forward your tax deduction to this financial year if you are a small business entity or an individual incurring non-business expenditure.
7. Prepay your income protection insurance premium
If you have, or are considering, income protection insurance, you could claim your premium as a tax deduction. If you choose to pre-pay your premiums for the next 12 months and that 12-month period ends before 30 June next year, you can bring forward a tax deduction from next year to the current year. As many Australians are under-insured, this can be a great way to protect yourself, your family and your business, while managing your tax.
8. Ensure you take your minimum pension payment for FY18
For those whose superannuation benefits are in pension phase, it is essential that you take your minimum pension amount for FY18 to ensure your earnings remain tax-free. If you have an SMSF, consider contacting your accountant or administrator to ensure you have taken the minimum amount before 30 June.
9. Make a tax-deductible donation to charity
Finally, tax time can be a great time to think about helping others. If you donate to an eligible charity, keep your receipt and claim a deduction in your annual tax return.
Gemma appears in this short video on the things you should consider for the EOFY period. It provides a general overview only and should be watched in conjunction with this article.
Gemma Dale is Director of SMSF and Investor Behaviour at nabtrade. Any advice and information in this publication is of a general nature only. It is not intended to be a substitute for specialised taxation advice. nabtrade is not a registered tax agent.
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