TOP TIPS FOR TAX PLANNING

With everything else going on, it’s easy to forget that the end of the financial year is almost upon us. We’re yet to see the End of Financial Year Sales adverts that remind us it’s nearly tax time. This year, most of us are probably thinking of more conservative approaches for spending our tax refund rather than buying a new car or restocking our wardrobe.

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 does not take into consideration your personal circumstances.

While there was no Federal Budget released in May as per usual, there are some items you’ll need to consider at tax time that might be new to you:

JOBKEEPER AND JOBSEEKER PAYMENTS

These payments are taxable. If you have been receiving these payments, including the Coronavirus supplement, you will receive documentation similar to a payment summary from Centrelink detailing your payments for the financial year.

WORKING FROM HOME ALLOWANCE

PAYMENT SUMMARIES AND PRIVATE HEALTH INSURANCE STATEMENTS

Gone are the days of paper payment summaries and group certificates. Because most employers are required to report your salary to the ATO, they already hold all your information. You’ll see that your payment summary and private health information are in your MyGov account when you start your tax return online. If you use an accountant, they will also be able to see this information.

Here are some tips that haven’t changed this financial year.

Most people forget that super is your money. It seems so inaccessible (except for now with the early access to super), and for most of our working lives, intangible and something to think about later. Super is the most tax effective way to save money and invest in your retirement. Consider making the most of these opportunities before the end of the financial year.

CONCESSIONAL CONTRIBUTIONS

Concessional contributions are before-tax contributions to superannuation that receive favourable tax treatment. These are payments such as the contributions your employer pays on your behalf, any salary sacrifice payments you have arranged and some tax-deductible payments you can make.

All of these contributions can help you reduce the amount of personal income tax you have to pay. This is because super has a special tax rate of 15%, so if, for example, you salary sacrifice you only pay 15% tax on that amount instead of your usual marginal rate of tax (between 19% and 45% depending on your income). By taking advantage of these contributions, not only do you have the potential to pay less tax, you’re accumulating money for your retirement. If applicable, you could also buy your first house through the First Home Super Saver Scheme.

If considering this strategy, you’ll need to be mindful of the limits on the amount of concessional contributions. For the 2019/2020 financial year, the cap on concessional contributions is $25,000. To make sure you don’t breach this cap, calculate the contributions your employer(s) have made, any salary sacrifice contributions and contributions others may have made on your account. You should be able to see this easily if you have online access to your super.

NON-CONCESSIONAL CONTRIBUTIONS

Non-concessional contributions are superannuation contributions where a tax deduction hasn’t been claimed by you or your employer. These include payments such as a one off after tax payments, spouse contributions and Government co-contributions. The cap for this financial year on non-concessional contributions is $100,000. If you exceed the cap, tax will be applied at 47% for excess contributions.

Although these 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 CONTRIBUTIONS

If you earn less than $37,000 this financial year, and meet the criteria, you may be eligible for a refund of up to $500 on the tax you have paid in super. You don’t need to do anything to claim this, if you are eligible, this will be paid automatically after you have lodged your tax return.

SPOUSE CONTRIBUTIONS

Spouse contributions are a great way to help your spouse build their super if they are earning less than $40,000. You can contribute to their super and may be eligible to claim a tax offset of up to $540. If your spouse’s income is less than $37,000 you can claim the full $540, if it’s up to $38,000 you can claim $360, and if they earn $39,000 the amount you can claim is $180.

BRING FORWARD DEDUCTIBLE EXPENSES OR PRE-PAY DEDUCTIBLE INTEREST

Did you know you can bring forward some deductible expenses? If you have the money available to you now to pay these expenses, you can lower taxable income this financial year. This could be a good strategy if you are expecting your income to be lower next financial year.

Some of the areas you could consider are below:

• Work-related expenses, such as equipment/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 organisations
• Income Protection insurance premiums

MANAGE CAPITAL LOSSES AND GAINS

If you have any assets to sell that might trigger a capital loss or gain, you should consider how this can affect your tax situation. These capital losses or gains are called ‘taxes’ but in reality, these gains and losses make up part of your taxable income.

Here’s an example of how you can plan effectively: if you know that you will be earning less next financial year, you may be better off waiting until then to sell an item that will trigger a capital gain. This financial year your tax liability won’t change, and when you do sell, the capital gain tax could be lower to align with your lower tax rate.

It’s worth noting that a capital loss can only be used to offset a capital gain. You may be able to carry forward a capital loss if you don’t have a capital gain to offset the loss in that financial year. Given the downturn in the market due to Covid-19, you may have sold some assets, or taken another type of loss yourself. If this is the case, you should definitely talk to us or your accountant about how to offset this loss.

You should consider tax planning as part of your overall investment strategy, and you should talk to a professional to plan your strategy.

ORGANISE EXPENSES, RECEIPTS, AND STATEMENT

It’s time to start getting ready for this year’s tax return. Start gathering your receipts, statements, records of expenses and store them safely. This way you know where everything is and gives you time to get copies if you misplaced the original.

Our Wealth Portal, MyFramework is a great tool that can help you with document storage to keep your information safe. This is an all in one digital platform helps to best understand your financial situation and can help you at tax time. Other features include:

• Everything in one place: add your credit cards, bank accounts, properties, car, home loans, investments and more to easily track and manage your finances.
• Always up to date: enable live property and bank feeds from leading financial platforms.
• Cashflow and budgeting: auto-categorised transactions and powerful budgeting tools make setting goals and getting a full picture of your income and expenses a breeze.

Contact us if you would like access to this powerful tool, there is no cost to you.

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 – with many of them falling around or at financial year end.

NOW YOU’RE READY

June 30 is right around the corner! With the tips we’ve provided, you should be ready to go and not leaving anything until the last minute. Have a look at your current financial situation and think about whether you should make any adjustments.

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 ensure that any action you take will meet 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.