Superannuation and Tax Strategies for End of Financial Year Planning
May 8, 2021
As 30 June fast approaches, there are various end of financial year (EOFY) strategies that you can consider implementing. Strategies that will apply to you will depend entirely on your personal financial situation and these can include:
Reducing your tax bill
Building as much wealth as possible for retirement
Furthering existing support of charitable organisations (if applicable to you)
Maximising Contributions to your Superannuation Account
Some of the most important EOFY planning considerations are focusing on the fact that various changes were made to the superannuation contribution framework as of July 1, 2017. These included:
The cap limit for concessional contributions has dropped down to $25,000 per year, regardless of how old you are
The cap limit for non-concessional contributions has been reduced to $100,000 per year, and the maximum bring-forward rule has been reduced to $300,000
As a result of these changes, it is essential that you review all of your concessional and non-concessional contributions each year.
You might be able to reduce your taxable income and also contribute additionally to building wealth within your superannuation account by utilising what is left of your annual concessional contribution cap limit before the EOFY. However, this will depend entirely on your financial situation. If you are thinking about using this method, you need to be made aware that you could be liable for an excess concessional contribution tax if you exceed the abovementioned limits.
As a result, it is crucial that you know and understand:
Your yearly cap limit on concessional contributions
All of the contributions made by you, your employer(s) and any others that have been made on your behalf, along with the date that they were received into your superannuation fund
It is important to remember that salary-sacrificing arrangements can be set up with consideration towards leaving a small buffer between all of your concessional contributions and the corresponding yearly cap on concessional contributions. This buffer could assist with reducing the risk of having to pay excess concessional contributions tax for any excess contributions that may have been made.
You will have to determine whether you will be able to afford to make additional non-concessional contributions to your superannuation account this financial year or not. Although these contributions will not be able to reduce your taxable income, they will still contribute to building wealth within your superannuation account. In addition, if you meet predetermined criteria, you may also qualify to receive the Government’s Co-contribution.
Your superannuation account can provide you with a highly tax effective way to build wealth, depending on your financial circumstances. For instance, while in the stage of accumulation, there will be a maximum tax rate of 15% on income that has been earned and 10% on any capital gains that have been held for a period of longer than 12 months.
Claim Spouse Contributions Tax Offset
If you make any con-concessional contributions on behalf of your spouse into their superannuation account, you could qualify for the spouse contribution tax offset. This could assist with reducing your tax bill, while also giving your spouse’s superannuation account balance a boost.
The spouse contribution tax offset will be determined as 18% of the lesser of:
The full amount of your non-concessional contributions that have been made on behalf of your spouse into their superannuation account for this financial year
$3,000, reduced by $1 for each $1 that your spouse’s assessable income, total reportable fringe benefits and reportable employer superannuation contributions are over $10,800 for this financial year
For instance, you could qualify for the maximum spouse contribution tax offset of $540 during this financial year if the following takes place: your spouse’s assessable income, full reportable fringe benefits and reportable employer superannuation contributions are $10,800 or under, and you then make a non-concessional contribution of $3,000 into their superannuation account.
Capital Gains Management
When selling an asset, timing is everything – especially when managing capital gains from a tax preparation perspective because any capital gain will be assessable during the financial year in which it is crystalised.
In some instances, you might want to consider delaying the selling of an asset if it has an expected capital gain (along with the applicable capital gains tax liability) to another financial year. This could be beneficial if you think that your income is going to be lower at some point in future compared to your income level for the current financial year.
If you are thinking about selling an asset that you have had for less than one year, any capital gain that has been made could be assessed in its entirety at the time of sale. However, if you decide to defer selling an asset until such time as you have had it for 12 months or longer, you could be entitled to the 50% capital gains tax discount.
In cases where you have had any crystalised capital gains during the year, you could determine whether it will be the right time to sell any investments that are currently at a loss. These losses would help offset any capital gains you may have made.
Keep in mind that any decisions you come to should be in line with your current investment strategy, while also taking into account the effects of selling an asset for tax planning purposes.
Bring Forward Tax-deductible Expenses
Your taxable income is classified as being your assessable income minus any tax deductions. Bringing forward a tax-deductible expense could enable you to reduce your taxable income for the financial year.
Depending on your financial circumstances, you might also be able to bring forward tax-deductible expenses such as:
Charitable donations that have been endorsed by the Australian Taxation Office (ATO) as ‘deductible gift recipient’ organisations
Salary Continuance Insurance or Income Protection premiums
Interest payments on investment loans
Cost of repairs and maintenance to investment properties that are available for rent or currently being rented out
You could also qualify for other deductions with regards to tech devices used for work purposes, work clothing, work travel costs, working from home deductions and relevant educational expenses.
It is essential to keep in mind that this may not be a viable strategy if you think that income during the following financial year is going to be lower than this year’s income.
Although many EOFY tips have been provided here, it is strongly recommended that you consult with a professional financial advisor before making any final decisions regarding your taxes and finances. Not only are everyone’s circumstances different; you may do my math homework not be aware of other strategies that could be used to help reduce your taxable income.