It’s really important to consistently focus on how to improve your personal finances. But good intentions aside, there’s nothing like a deadline and the end of the financial year (EOFY) is one of the key dates to aim for when it comes to tax planning.
June 30 is a really important deadline to keep in mind to ensure you are taking advantage of all incentives and initiatives available to get the most out of your super, to reduce the tax you pay and to structure your affairs in the best possible way for the new financial year.
It’s worth understanding some of the important steps to take at this time of the year to enhance your financial situation.
Here are some strategies to consider.
Do you pass the test?
If you are aged between 65 and 75 it’s critical to determine if you have passed the work test to make super contributions. Under this test, you will need to have worked 40 hours over 30 consecutive days to be able to make contributions to your super fund.
Stay within the rules
It’s essential to understand the rules around making contributions to your super fund as we near the end of the financial year. There are two contribution categories and it’s important to understand how they work.
The first category is concessional contributions. These are contributions you make to your super fund before you pay tax on your income, to help lower the amount you earn and the tax you pay on it. There are limits to how much you can contribute on a pre-tax basis, depending on your age.
You can contribute up to $35,000 on a concessional basis annually into your super if you were 49 or older at 30 June 2015. Super investors younger than this can contribute up to $30,000 a year into their super fund on a concessional basis.
At this time of year, it’s really important to review any salary sacrificing arrangements you have in place to ensure you stay within the rules. If you do pay too much on a concessional basis into your super fund you may find you pay more tax than you expected to on this money.
Super and the self-employed
If you work for yourself, or if your income comes mainly from investments, pensions or from sources from overseas, you may be able to make personal contributions to your super fund and claim a tax deduction for them. But be aware these rules don’t usually apply if you are mainly an employee.
If you are eligible to make a personal contribution to your super fund make sure you do so well before the financial year, to ensure the money lands in your super account before 30 June.
It’s also essential to make a proper notice of intent to claim a deduction. Be aware there are strict rules around the format of this declaration and it’s important to stay inside them. You can download a form on the Australian Taxation Office’s web site to make this declaration.
Aside from the pre-tax contributions you can make, it’s also possible to contribute to your super fund from after-tax earnings. There is an annual cap of $180,000 on non-concessional super contributions. However, if you were aged 64 or under on 1 July 2015, you may be able to take advantage of the bring-forward rule and make contributions of up to $540,000 in a single year to your fund.
As we near the end of the tax year, if you have a super pension make sure you have received at least the minimum pension payments required across the year.
Also, if you have made a capital gain during the year, review your portfolio to determine if there are any loss-making assets of which you wish to dispose. Any realised losses will reduce the fund’s capital gains tax liability.
Small business benefits
There were a number of measures introduced in last year’s federal budget aimed at small businesses. For instance, the tax rate has dropped from 30% to 28.5% for small businesses operating under a company structure. The federal government also temporarily increased the accelerated depreciation threshold to $20,000. As such, any qualifying assets purchased for less than this amount and used in the business before the end of the current financial year can be used to reduce your assessable income for this year. This higher threshold will also be available next year and will return to $1,000 from 1 July 2017.
While these are the more common strategies, there are many more that may apply to you depending on your circumstances. Starting the conversation with us sooner rather than later will give you the best chance of building your nest egg before the end of the financial year.