It’s hard to believe another end of financial year is almost upon us. While we still have some time up our sleeves before the calendar ticks over to 1 July, now is the time to plan your end of financial year financial planning strategies.
Here we discuss a number of superannuation and tax related considerations that need to be addressed prior to the end of financial year. Taking action well in advance of 30 June is the key, as once the calendar turns over to the new financial year your contributions and tax saving options could be reduced or missed altogether.
Concessional and non-concessional contribution caps
The Employer Super Guarantee is currently 9.5% of your salary which may provide an opportunity for you to top up your super balance to the $25,000 p.a. concessional contribution cap. It is important to check any salary sacrifice contributions that may have been made during the year and premiums paid for superannuation-owned insurance policies so these extra contributions don’t push you over the cap.
In some circumstances, you may be able to contribute more than the standard $25,000 p.a. cap using the catch-up contribution rules. Under these rules any ‘unused’ concessional contributions since 2018/19 can be carried forward for up to five years. However, there are other considerations as well, including the total balance of your super, that need to be discussed to determine eligibility for the catch-up amounts so you can make best use of this opportunity.
Additional concessional contributions may be used to assist with reducing tax from capital gains realised on other investments held outside super.
Then there is a 3-year bring-forward rule which will allow non-concessional contributions, currently $100,000 per year, to be brought forward. This provides opportunity for up to $300,000 to be contributed to super in a given financial year. This could be useful if you’ve received a windfall, sold a property or other asset, or if you have surplus cash in a bank account that you’d like to see go into your super.
As outlined in our earlier article regarding the new super rules that apply from July 1, the bring-forward cap for non-concessional contributions will increase to $110,000 per year up to $330,000 for three years. With both age and super balance conditions are attached to the rule, so it is important to consider the contribution options under the current rule in context of the upcoming rule changes to achieve the outcomes that are best for you.
Government super co-contributions
The government’s superannuation co-contribution scheme provides an opportunity to increase super savings for those on lower incomes, which can include spouses of high-income earners. Individuals earning less than $54,837 p.a. in 2020-21 are eligible for co-contributions, which can be up to $500 or 50 cents in the dollar, for personal contributions up to an annual total of $1000.
Again, there are conditions that must be observed, so this too will become part of our end of financial year planning discussion.
A spouse contribution strategy can be effective in building the super balance of a lower income spouse. If you make an after-tax contribution to your spouse’s super account, you may be eligible for a tax offset of up to $540 if you make a contribution of $3,000 and your spouse’s income is $37,000 or less. The offset gradually reduces for incomes above $37,000 and completely phases out at $40,000 p.a. or more.
It may be advantageous from a longer-term planning perspective to ‘split’ (or transfer across) concessional contributions to a spouse’s super account. The end of the financial year is a deadline to split the previous year’s concessional contributions to your spouse. As always, there are considerations as to whether this may be an appropriate strategy for you. And also, not all super funds allow contribution splitting.
Managing Capital gains
While additional super contributions (if available) may be used to offset realised capital gains made during the year, opportunities may also exist to sell a poorly performing investment that no longer suits your needs. This may trigger a capital loss which could reduce tax payable elsewhere and also provide funds for other investment opportunities or strategies.
Making the most of your deductions
While your accountant will advise you on your tax obligations, we can help you identify eligible tax-deductible expenses such as pre-paying interest on loans and claiming your income protection insurance premium.
For business owners, there is a range of incentives currently on the table, including instant asset write-off measures which allow for the purchase of some capital assets to be fully expensed in the year of first use.
The value of a conversation
While this article represents a snapshot of the opportunities available as we head toward the financial year-end, it’s how they are applied in context of your individual circumstances that really count.
As financial planners our role is to consider your entire financial position and that includes how tax affects your financial plan and overall prosperity. This is where our regular progress meetings and the conversations we have with you are of such value.
They enable us to not just to inform, but to collaborate with your accountant, so the tax implications that affect your financial plan can be fully explored and applied in your best interests.
To find out more about how we can assist you to make the most of the end of year financial planning opportunities, please give us a call and together, we can make it happen! Please contact Brett Cribb, Steve Nicholas or James Marshall on +61 (0)7 3007 2007 or email firstname.lastname@example.org.
Stratus Financial Group helps professionals, executives, business owners, families and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.