As the end of financial year 2019 is upon us, it’s time to maximise contributions, ensure you’ve satisfied minimum pension drawings and optimise your tax position prior to 30 June.
Things to consider:
- Top Up Your Super Contributions
- Bring Forward Super Contributions
- Make a Spouse Contribution
- Get a Government Co-Contribution
- Lodge Your Deduction Notice
- Review Salary Sacrifice Arrangements
- Pre-Pay Expenses & Crystallise Losses
- Defer Income & Gains Until July
- Gather Your Receipts
- Meet Minimum Pension Standard
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 $25,000pa 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 too.
Any amount of personal contribution that you don’t or can’t claim as a tax deduction is counted against the $100,000pa ‘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 get 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 get 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, you would generally want to think about bringing 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 self-managed super fund, 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 (that’s 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 to ensure they’re effective.
Ideally, you would be making sure that any salary sacrifice arrangements for extra concessional contributions to super weren’t going to result in you breaching the contribution caps and paying extra tax. You should also review those arrangements when you have a change in salary e.g. a salary review or on promotion.
Lastly, get your admin in order!
SMSF Trustees, please ensure that you meet your minimum pension payment requirements.
The information in this article contains general advice and is provided by ExpertSuper™ Pty Ltd as an authorised representative of Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (available here) for contact information and information about remuneration and associations with product issuers.This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article (3 Apr 2019) and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.