In preparation for the end of the financial year, you should think about managing your affairs to minimise your tax and maximise your income.
Leading up to the end of the financial year, here are time-sensitive tax breaks, various tips and superannuation ideas for you to think about.
Please note that this information is of a general nature only. Before taking any action you should confirm with your adviser at WLM what exactly may be relevant to you and consider the impact on your overall financial position.
URGENT – one off opportunities before 30th June
- If you can, prepay your annual Private Health Insurance premium before the end of June 2012 to cover the next 12 months. As of 1 July 2012, the rebate will be means tested and policyholders will no longer be guaranteed the minimum 30% rebate. Under the changes individuals earning above $83,000 and familes on more than $166,000 will progressively lose the insurance rebate. This means that from 1 July 2012, health insurance premiums will increase substantially for high-income earners - and this comes on top of an industry-average premium increase of more than five per cent since April 1. Please be aware that this is a once-off saving and will not be possible every year.
- If you can, and only where appropriate, bring forward any medical, dental, and any other health related expenses as well as getting prescriptions filled to before 30 June 2012. Currently you can claim 20% of medical expenses over $2,000, after any reimbursements from your health care insurer or Medicare. Next year this will be means tested with a higher threshold at $5,000 and a lower offset of 10%.
- For those over 50, top up your Concessional Super Contributions to $50,000. This limit will reduce to $25,000 (for everyone) from 1st July 2012.
- If your income is over $300,000 bring forward any tax deductible superannuation contributions to this year as the tax on contributions will rise from 15% to 30% next year.
- Maximise your entitlement to the government super co-contribution (if eligible) by making a non-concessional superannuation contribution prior to the end of the financial year. This reduces by half for next financial year.
- Consider bringing forward any golden handshakes as the current (more generous) transitional rules will end on 30th June.
Tax deductible super contributions
Personal tax deductible contributions made by individuals who satisfy the 10% rule.
- The 10% rule requires that less than 10% of the total of the individual’s assessable income, reportable fringe benefits and reportable employer superannuation contributions for the financial year comes from employment- related activities from which you also receive superannuation contributions.
- The maximum deduction that can be claimed is $25,000 if the taxpayer is under 50 or $50,000 if the taxpayer is 50 or older for this financial year only.
Salary sacrifice contributions are taxed at 15% compared to income taken as cash, which may be taxed at a higher marginal tax rate. This can help to save on income tax and the Medicare levy while increasing your retirement savings.
Government Super Co-contribution
Maximise your entitlement to the government super co-contribution (if eligible) by making a non-concessional superannuation contribution prior to the end of the financial year.
- Eligible personal superannuation contributions are matched dollar-for-dollar by the Government up to a maximum of $1,000 for this year.
- For 2011/12 the maximum government co-contribution is payable to individuals on incomes at or below $31,920, and reduces by 3.333 cents or each dollar by which the individual’s total income for the year exceeds $31,920, cutting out completely once an individual’s total income reaches or exceeds $61,920.
- For 2012/13 the maximum government co-contribution will be reduced to $500 with the higher threshold reducing to $46,920.
Tax offset for spouse contribution
Taxpayers are entitled to a maximum $540 tax offset for superannuation contributions made on behalf of a low income or non-working spouse.
- The maximum rebate of $540 is based on 18% of a maximum $3,000 non-concessional contribution.
- The maximum rebate is reduced by $1 for each $1 that the total of the spouse’s assessable income, reportable fringe benefits and reportable employer superannuation contributions exceeds $10,800 cutting out completely once this figure reaches $13,800.
Maximise after tax contributions
Make a non-concessional contribution up to the allowable cap before the end of the financial year.
- If you contribute less than $150,000 during the financial year, the unused cap amount is not carried over to future financial years. Therefore, where possible, make full use of your annual cap entitlement and your ability to maximise your retirement savings.
- If you turned 65 during the financial year you are still entitled to bring forward two years worth of contributions and make a contribution of up to $450,000 in this financial year (assuming that you have not already triggered the bring forward rule in the two preceding financial years or you have made any other non-concessional contributions in this financial year).
* You will need to satisfy the work test in this financial year if you are over age 65when you make the contribution.
Transition to Retirement
Although there have been changes to maximum contribution levels for those over 50 from 1/7/12, transition-to-retirement (TTR) pensions can continue to be an effective strategy for over 55’s. This combines salary sacrificing into super with drawing an income from a TTR pension. See your adviser at WLM to assess this benefit for you.
Tax Deductible Expenses
- Pre-pay interest on investments loans before 30th June for the following 12 months. This can also fix the interest rate if you believe rates will rise.
- Pre-pay any tax deductible expenses such as tax or accounting fees, financial planning fees, professional subscriptions, self-education and work related expenses before 30th June.
- Pre-pay Income protection insurance for next year.
- Purchase business or personal income producing related expenses, such as stationary, equipment or deductible goods before 30th June with the deductible expense being applied to this financial year.
- One off items may be tax deductible, such as computer repairs, virus software, etc. but remember to keep the receipts.
- Make donations before end of year.
- Keep receipts for school expenses if you have children of school age and are eligible for Family Benefits Part A.
Deferring income may be applicable for many people, especially as they may be on a lower tax bracket the following financial year*, such as:
- Organising fixed interest payments to mature next financial year.
- Delaying bonuses or eligible termination payments to July 1st.
- Not asking for pre-payment of salary if you are taking leave in June.
* Please note that by bringing forward income could be impacted by the Flood Levy, resulting in a 0.5-1 per cent higher tax bill next year.
General Tax Tips
- If taking work home individuals can:
a) write off expenditure on small asset acquisitions if they cost less than $300 and if they relate to income-earning activities.
b) Some expenses, such as telecommunications, power, heating, etc, canproduce tax deductions.
c) You may also be able to depreciate office furniture and equipment.
d) Keep a diary of work related expenses and time spent at home office.
- Avoid the 1% Medicare surcharge by taking out private health insurance with hospital cover if you are over the taxable income threshold of $73,000 for singles and $146,000 for families.
- Ensure that interest bearing accounts and investments are in the name of the lowest income tax payer, if appropriate in regards to your circumstance for asset protection, income-splitting flexibility, succession and estate planning.
- Appoint a registered tax agent if you wish to legitimately delay the due date for filing you tax return and, hence, the payment of tax.
- Use up accumulated capital losses as they are diminishing in value each year. You should consider taking gains along the way which can also be offset by accumulated losses.
- Speak with your employer to see what can be salary sacrificed outside of super. You may be able to maximise some opportunities for both employees and employers.
- Consider Capital Gains Tax (CGT) when selling assets as there is a personal discount of 50% if assets have been held for over 12 months.
- Keep putting money into super (see section above).
Important Checks to Consider
- Check that your super fund has your tax file number.
- If you have several employers, check that your total super contributions do not exceed your contribution cap of $25,000 if under 50 years or $50,000 if over 50 years for this financial year.
- DIY or SMSF funds need to ensure that any in-house assets won’t exceed 5% of total assets at 30th June.
- For Transition to Retirement (TTR) and Account Based pensioners, ensure that the minimum pension has been taken before 30th June.
Additional Helpful Hints
- Remember to keep receipts !
- Lodge your tax return as early as possible if a refund is expected or as late ras possible if you expect to pay tax.
- Review deductible debt verses non-deductible debt where possible. For debt re-structuring strategies please consult your adviser at WLM.
- Start early with additional super contributions from spare cash flow.
Other Federal Budget adjustments for 2012/13
- From 1 July 2012 the tax-free threshold has been tripled from $6,000 to $18,200, which will benefit low to middle income earners.
- The Government confirmed it's intention to increase the Super Guarantee from 9%-12% incrementally until 2020, with the first increase of 0.25% taking effect on 1 July 2013.
- From 1/7/12 individuals with income greater than $300,000 will have the tax concession on their concessional contributions reduced by 15% by being subject to a 30% tax rate on non-excessive concessional contributions, rather than the 15% tax rate currently applied.
- Small businesses, that have an aggregated turnover of less than $2 million, can claim up to $5,000 as an immediate deduction for motor vehicles, with effect for vehicles acquired from the 1 July 2012. The changes will enable small businesses to write-off all depreciable assets where the taxable purpose proportion is less than $5,000 in the income year in which they start to use the asset, or have it installed ready for use.
In summary, as with all aspects of your financial affairs, you should seek professional advice to ensure that your personal circumstances are appropriately dealt with. Also remember that while tax strategies may be of importance, especially at this time of year, you should also remain focused on your long term strategies.
Please feel welcome to call us on (02) 9221 7777 if you wish to discuss this or any other financial matters, to help make sure you remain On Track.
If you feel that someone you know and care about could do with some help, please feel welcome to call us or use our confidential referral page on our website.