As the end of financial year 2019 is upon us, make sure you have maximised your super contributions, met your pension payment minimums and optimised your tax positions before 30 June.
Below are some common strategies that you may wish to discuss with your adviser.
- 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 $100,000 pa ‘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.
Get your admin in order
SMSF Trustees, please ensure that you meet your minimum pension payment requirements. Please contact your accountant if you aren’t sure what amount to pay and contact your adviser now if you need help to arrange payment.
It’s a good idea to start gathering your paperwork, including those pesky little donation and incidental receipts, so you’re ready to meet your accountant early in the new financial year.
Global uncertainty and local rate cuts support exposures to Australian alternative lending
We think one of the key beneficiaries of recent local and global events is the Australian alternative lending space and our preferred providers such as Metrics and Qualitas.
The uncertain global economic environment suits defensive assets and the potential for multiple Australian rate cuts seems likely to fuel additional ‘yield reach’ from investors looking to supplant falling returns from cash and hybrid security investments.
Whilst both the Metrics Master Income Trust (MXT) and Qualitas Real Estate Income (QRI) funds are exposed to falling base rates, we think there is potential that both funds see increased investor attention from investors seeking higher yield and that this leads to both listed-investment trusts grinding to a wider premium to underlying asset value.
What to do?
Talk to your adviser ASAP if you think any of the strategies mentioned here might need further consideration in light of your personal circumstances.
Written by Michelle Bromley CFP
The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL No. 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 relevant Product Disclosure Statement (PDS) of any financial product discussed in this article before making any decision to acquire it. Please refer to our FSG (available here) for contact information and information about remuneration and associations with product issuers.