The end of financial year is looming but it’s not too late to put in place some smart strategies before 30 June to help reduce tax liabilities.
1. Tax-effective philanthropic giving
One option for managing the tax situation is to consider tax-deductible charitable giving. This can assist with year-end tax planning while making a difference to the lives of others. Depending on individual circumstances, clients may consider donating directly to a chosen charity, setting up an account within a public charitable fund, or establishing a Private Ancillary Fund (PAF). Professional advice will ensure the chosen strategy maximises both tax effectiveness and social impact.
2. Add to super – and claim a tax deduction
Contributing some after-tax income or savings into super may allow a tax deduction. It means reducing taxable income for this financial year and potentially paying less tax – and at the same time, boosting the super balance.
The strategy works for those with a marginal tax rate higher than 30 percent. Super contributions are generally taxed at up to 15 percent in the fund (or up to 30 percent for those earning $250,000 or more). For those with a marginal tax rate up to 47 percent (including the Medicare Levy), contributing to super could reduce the tax payable. A valid ‘Notice of Intent’ must be sent to the super fund, and an acknowledgement received from them, before completing the tax return.
Keep in mind that personal deductible contributions count towards the concessional contribution cap, which is $25,000 for this 2018/19 financial year (which also includes all employer contributions, including Superannuation Guarantee, salary sacrifice and separate superannuation policies). Penalties may apply if the cap is exceeded so it’s important to stay within the limits.
3. Convert savings into super savings
Another way to invest more into super is by making a personal non-concessional contribution with after-tax income or savings.
Although these contributions don’t reduce taxable income for the year, clients still benefit from the low tax rate of up to 15 percent that’s paid on super on investment earnings. This tax rate may be lower than that paid if the money is held in other investments outside super.
Before considering this strategy, make sure contributions stay under the non-concessional contribution cap, which in 2018/19 is $100,000 (or up to $300,000 if certain conditions are met). That’s because after-tax contributions count as non-concessional contributions. Penalties may apply if the cap is breached.
To use this strategy, the total super balance must have been under $1.6 million on 30 June 2018. Remember, any money put into a super fund can’t be accessed until preservation age is reached, or other ‘conditions of release’ are met.
4. Get a super top-up from the government
Those earning less than $52,697 in the 2018/19 financial year, with at least 10 percent of this from a job or business, could consider making an after-tax super contribution, as the Government may make a co-contribution of up to $500.
The maximum co-contribution is available for those who contribute $1,000 and earn $37,697 or less a year. A lower amount may be contributed for those who contribute less than $1,000 and/or earn between $37,697 and $52,697 a year.
Keep in mind that earnings include assessable income, reportable fringe benefits and reportable employer super contributions.
5. Boost spouse’s super
If one spouse is not working or earns a low income, couples may want to consider making an after-tax contribution into their super account. This strategy could potentially benefit the low-earning spouse’s super account which gets a boost as well as the higher-earning spouse as they may qualify for a tax offset of up to $540.
The full offset is available for those who contribute $3,000 and the spouse earns $37,000 or less a year (including assessable income, reportable fringe benefits and reportable employer super contributions). A lower tax offset may be available for those who contribute less than $3,000, or the spouse earns between $37,001 and $39,999 a year.