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Important information: Any advice and information in this publication is of a general nature only. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of an individual’s liabilities, obligations or claim entitlements that arises, or could arise, under taxation law, and we recommend that you consult a registered tax agent. WealthHub Securities Ltd. is not a registered tax agent.
While 30 June is rapidly approaching (and falls this year on a Sunday), investors still have time to ensure they are well prepared to take advantage of the tax concessions and other opportunities that present themselves before the end of the financial year.
Here are nine strategies to consider.
If you are self-employed or have a business with an aggregate annual turnover of less than $50 million, you may be able to immediately deduct the cost of each depreciating asset under $30,000 purchased in FY19. Due to changes in the legislation, the amounts you could deduct for each asset are up to:
In order to access the deduction, the asset must be income producing for your business, and installed and ready for use before the end of the financial year. The great news is that there is no limit to the number of eligible purchases that can be claimed. Given the changes to this policy throughout 2019, speak to your tax agent before making any big purchases if you’re unsure about what will be eligible.
For investors, the end of the financial year is an opportune time to review your portfolio and clean up those loose ends. If you have carried forward losses, these can be offset against capital gains to minimise any tax payable. Be aware that 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, so ensure that your transactions are investment, not tax driven.
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. But now employees can enjoy a potential tax deduction too.
By making a before-tax contribution into your super, you could help 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 annual adjusted taxable income above $250,000) 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 Superannuation Guarantee contributions. And even if you are salary sacrificing, you might also want to consider using this strategy if you’re keen to contribute the full amount of concessional contributions, and your current salary sacrifice agreement, together with any additional employer contributions before 30 June won’t quite get you there. The cap in 2018/19 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.
Does your spouse earn under $40,000 each year? If so, their super could probably benefit from an extra top up. And now, if you contribute to their super you could potentially receive an offset of up to $540 in your tax return.
Before 1 July 2017, this tax offset was only available to couples where your spouse earned less than $13,800 per annum. But with the threshold increased to $37,000 for a full offset, before cutting out at $40,000, more people will be able to help increase their spouse’s retirement savings while potentially improving their own tax position.
If you earn less than $52,697 in 2018/19 (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 $37,697, you could contribute $1,000 to super and receive the maximum co-contribution, which is $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 $52,697. 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.
When you borrow money to make an investment that will generate assessable income (often called gearing), you are generally entitled to claim 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 twelve months (with the 12 month period ending before 30 June next year). Doing so generally allows you to lock in the interest rate you pay for next financial year (giving you certainty around the cost of your investment) and bring forward your tax deduction to this financial year.
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 – potentially reducing your taxable income this 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.
For those whose superannuation benefits are in pension phase, it is essential that you take your minimum pension amount for the 2018-19 financial year to ensure your earnings remain tax free. If you have a self managed superannuation fund, consider contacting your accountant or administrator now to ensure you have taken the full minimum amount before 30 June.
Finally, tax time can be a great time to think about helping others. If you are keen to make a donation to an eligible charity, keep your receipt and claim a deduction in your annual tax return.