The time period right before the financial year ends is an excellent time for you to take stock.
Not only will it enable you to look at everything you have been able to achieve throughout the year, it can also help you determine whether you should and can do some fine-tuning.
That fine-tuning might help you minimise your tax liabilities and help determine what your taxable income could be.
Before you move forward with any of the following tips, be sure to consider getting professional advice first. The following advice is only general in nature and can change from year to year.
Contribute to Superannuation
All of us are familiar with the purpose and place of superannuation in our lives, no matter what our engagement level is (i.e. a hands-off or hands-on approach). Despite the recent changes that have taken place, superannuation is still an effective type of investment structure.
Concessional Contributions
Determine whether or not you can make additional concessional contributions.
The government has recently loosened the conditions around concessional contributions.
Previously only self employed people were able to tap into this tax effective way to contribute to super.
Although one way of making concessional contributions is to salary sacrifice, now more employees may be eligible to make their personal deductible contributions.
Those contributions can help you reduce the amount of personal income tax you have to pay as well as accumulate wealth for your retirement (and, if applicable, buy your first house through the First Home Super Save Scheme).
Note: It is very important to understand what the concessional contributions cap limit is each year. For 2018-19 all are eligible to contribute $25,000. For a worry free calculation, combine a careful assessment of all of the contributions that your employer(s), you and others, make on your behalf along with the date they are received (or expected to be) by the superannuation fund. When you do that it will help you avoid having potential excess concessional contribution tax liabilities.
Non-concessional Contributions
Consider whether or not you will be able to make additional non-concessional contributions into your superannuation fund prior to the end of your financial year. Although those contributions won’t further reduce your taxable income, what they can help you with is to save money for your retirement (and, as stated previously, if applicable, buy your first house). You might also be entitled to the Government’s Co-Contribution if you meet all of the criteria.
Co-concessional Contributions
If your spouse has assessable income under $37,000, then you should think about making non-concessional contributions into their superannuation fund. When you do that you might be entitled to get the Spouse Contributions Tax Offset, and that can help to reduce your taxes, and also increase your spouse’s balance in their superannuation fund. Of note, the tax offset is more accessible now, due to the income limit being increased (from $13,800 in 2016-17).
The end of financial year is your final chance to transfer (or split) 85% of your prior financial year’s concessional contributions into your spouse’s superannuation (as long as they haven’t met a retirement condition on release). If you made your personal deduction contributions for 2017-18, then you will need to make sure your notice is lodged in order to claim your tax deduction on your fund before you request the super split.
Increasing your spouse’s super via spouse super splitting and/or spouse contributions might hold even more significance now that there is a limit imposed by the transfer balance cap on individuals, which is a limit on how much superannuation may be transferred to retirement income phase from accumulation.
Please note: It is very important understanding what the implications are for your total superannuation balance. For instance, when it comes to the bring-forward rule and non-concessional contributions, the Spouse Contributions Tax Offset, and the Government Co-Contribution. Please considering getting professional advice since this can be quite a complicated area.
Bring Forward Deductible Expenses or Pre-pay Deductible Interest
If you do have the money available, and are expecting your income to be lower during the next financial year than this year, then consider bringing forward deductible expenses or prepaying deductible interest. When you do this, you might be able to lower your taxable income.
Depending on what your personal circumstances are, some of the areas that you might want to consider applying it can include the following:
- Work-related expenses, like equipment and tool expenses, internet expenses, computer, telephone, home office expenses, self-education expenses, dry-cleaning, laundry, and clothing expenses, travel expenses, and car expenses.
- Cost of maintenance and repairs for investment properties rented out or that are advertised/available for rent.
- Investment loan interest payment for things like shares or property.
- Donations to charities, that are classified as being deductible gift recipient organizations.
- Income Protection insurance premiums.
Manage Capital Losses and Gains
When selling an asset that triggers either a capital loss or gain, careful consideration must be given when it comes to tax planning. The following are some things that should be considered:
A capital gain is assesable during the financial year it is crystallized. Therefore, deferring the sale of an asset where a capital gain is expected until a future financial year will result in the capital gain being deferred (along with the associated capital gains tax liability). That might be appropriate to consider if you are expecting your income to lower in future years compared to this year.
If an asset is held for less than 12 months, a capital gain might be entirely assessed upon the sale. However, if you defer the sale of the asset until holding it for more than 12 months, then you might be entitled to get the 50% capital gains discount.
A capital loss can only be used for offsetting a capital gain. Also, if there isn’t any capital gain during the same year that the capital loss occurs, then the capital loss may be carried forward and then used during future years. It is then used to offset the capital gain that you made, and it might be worthwhile considering using a capital loss that is being carried forward or sell an asset that is at a loss currently.
Although a tax planning perspective is required for the above, in terms of selling that asset that triggers a capital loss or gain, decisions need to be consistent with the overall investment strategy you are using.
Organize Expenses, Receipts, and Statement
Although it might be a little way off before you get to this year’s tax return, you might want to think about starting to collect, sort, and store your expenses, receipts, and statements that are available to you currently. That might help to alleviate some stress that frequently comes with year-end preparations. Please read our article on preparing for tax time for a useful checklist of expenses, receipts, and statements that might be relevant to you.
Also, if you are running your own self-managed super fund, then you might want to give us a call to get information around a checklist for your SMSF. It provides an overview of various ongoing reporting and administration responsibilities – wit0h many of them falling around or at financial year end.
Moving Forward
In terms of planning for the financial year end, the important thing is not leaving everything to the last minute! June 30 is right around the corner, it’s time to assess your current financial situation to determine whether or not any adjustment should or can be made.
And keep in mind, that although we have discussed several tips here, it is very important that you understand that whether it is appropriate or not will depend on what your personal circumstances are. Please, consider getting professional advice to have an assessment made that aligns with your objectives, goals, and financial situation.
Disclaimer: Due to the ever changing landscape of the Australian financial and taxation system, please seek out advice from a professional before taking this advice into consideration. The above information is general in nature and should not be considered as advice.
Also, as we are a local financial advice business, we are not always able to keep this page up to date with the most recent information that regularly becomes available so it may become out of date at certain periods of time. Please speak directly to a member of our team to get the most up to date information related to investment, tax and superannuation.
