As the end of 2019 financial year is upon us, it’s time to maximise contributions, satisfy minimum pension drawings and optimise your tax and superannuation outcome prior to 30 June.
As a quick checklist, here are some items to consider:
- Top up your super contributions
- Bring forward super contributions
- Make a spouse contribution
- Obtain a government co-contribution
- Lodge your deduction notice
- Review salary sacrifice arrangements
- Pre-pay expenses and crystallise losses
- Defer income and gains until July
- Gather your receipts
- Meet minimum pension standards
Maximising super contributions
If you’re under 65 or otherwise eligible to contribute to super, you should think about maximising your contributions. However, there are limits on how much you can contribute.
Generally, up to $25,000 pa can be contributed from ‘before tax’ money (e.g. employer and salary sacrifice contributions) and provided you’ve got enough assessable income to offset, the ‘concessional cap’ includes personal contributions that you’ve claimed a tax deduction for.
Any amount of personal contribution that you don’t or can’t claim as a tax deduction is counted against the $100,000 pa ‘non-concessional cap’. If you’re under 65 and have less than $1,600,000 in super, you might be able to bring-forward two future financial years’ worth of the non-concessional cap to make a larger contribution of up to $300,000.
If you earn at least 10% of your income from employment, the Government may give you up to $500 as a government co-contribution if you make a non-concessional contribution. You need to be less than 71-years-old, earn less than $37,697 and make a $1,000 contribution to receive the full $500.
Low income earners also get a break on the 15% tax applied to concessional contributions. The Government will apply a low income super tax offset of up to $500 to your super account if you earn less than $37,000, so it might be worthwhile contributing extra and claiming a tax deduction.
If your spouse isn’t earning much, you might want to give their super a boost. If your spouse earns below $37,000, you can claim a spouse contributions tax offset of up to $540 when you contribute $3,000 to their super. They must be under age 65, but if they’re 57 or older they can’t be retired.
If you’ve made personal contributions that you intend claiming a tax deduction for, don’t forget to lodge your Notice of Intent to Claim a Deduction form with your super fund. You must receive an acknowledgement letter back from your super fund before you lodge your tax return, or before the end of the financial year following the year in which you made the contribution (whichever comes first). Without the acknowledgement letter, you can’t claim the deduction.
How to fund contributions? Perhaps you have spare cash, or think about selling or in-specie transferring assets held in your own name (subject to capital gains tax considerations, see below.)
Bring forward expenses and defer income
If you think you might earn less next year, or simply to have a bigger refund, you could bring forward tax deductible expenses and deferring assessable income.
Generally, you can pre-pay up to 12 months of expenses such as interest on an investment loan. This applies to deductible work-related expenses like insurance premiums for income protection policies too. If you’re planning on buying a new work-related tool (e.g. adding to your professional library or tools of trade), it’s immediately deductible if it costs less than $300.
If you’ve realised a capital gain during the year, you might want to consider bringing forward the disposal of an asset carrying a capital loss to offset capital gains. Just be careful not to get caught out in a ‘wash sale’ (where you sell shares to crystallise a loss and then buy them back shortly thereafter) as the ATO considers that a tax avoidance scheme and will cancel the benefit. The exception is if you in-specie transfer the shares into your SMSF, as the primary motivation is providing for your retirement.
Deferring income can be problematic, but worth considering if you are certain that you’ll earn less next financial year. A standout strategy is where you are retiring, and you ask your employer to defer your retirement until an agreed date in July. Your Employment Termination Payment will be subject to tax at the lower marginal rates (provided you won’t have any other sources of income next financial year) and if you’re 65, you have the opportunity to meet the 40 hours in 30 days ‘work test’ that ensures you’re eligible to contribute to super for the rest of that financial year.
While it’s generally too late to enter into a salary sacrifice arrangement for employment income earned in the current financial year, you should review your future arrangements for the coming 2019/2020 financial year.
Make sure that any salary sacrifice arrangements for extra concessional contributions to super are not breaching the contribution caps, resulting in paying extra tax. You should also review those arrangements when you have a change in salary.
Lastly, get your administration in order!
SMSF trustees, please ensure that you meet your minimum pension payment requirements, and place your paper work in good order.
Michelle Bromley is Director and Private Client Adviser at Prime Financial. This article is general information and does not consider the circumstances of any individual.