End of Financial Year Strategies and Tips
With the end of the financial year fast approaching there are some simple things you can do to make the most of your entitlements.
Superannuation remains one of the most effective ways to save for your retirement and there are a number of taxation benefits to be gained from investing in super. There are essentially two ways you can contribute funds into super; concessional and non-concessional contributions.
Concessional contributions are those pre-tax payments made to your super fund and include the compulsory 9.5% super guarantee paid by employers as well as any salary sacrificed amounts, and any personal contributions for which you can claim a tax deduction (such as those made by the self-employed).
Non-concessional contributions are those personal super contributions which are made from your after tax income and includes any contributions into your super fund from your spouse.
On 3 May 2016, the federal government announced an immediate cut to the non-concessional contributions cap, including a cessation of the bring-forward rule. Australians are now subject to a lifetime non-concessional cap of $500,000. Although this change has an immediate effect from 3 May 2016, it is still subject to legislation and subject to the Coalition winning the July 2016 Federal Election.
You may be able to boost your spouse’s super and reduce your tax
If your partner is on a low income, working part-time or not at all, you may be able to make contributions into their superannuation fund and claim a tax offset.
Under the current rules, you may be able to claim an 18% tax offset on super contributions up to $3,000 that you make on behalf of your low-income earning or non-working partner.
If your spouse receives $10,800 or less in assessable income, then you are able to access the maximum tax offset of $540 – providing an after-tax contribution of at least $3,000 is made. The receiving spouse’s assessable income plus reportable fringe benefits (RFB) plus reportable employer superannuation contributions (RESC) for the income year must be less than $13,800. You can contribute more than $3,000, but you won’t receive the spouse contribution tax offset on amounts above $3,000.
Take advantage of Government co-contributions
If your before-tax income is less than $50,454 a year and you make after-tax contributions into super, you are eligible to receive contributions from the government. These payments are called the government co-contribution. If your before-tax income is less than $35,454 the maximum government co-contribution is $500 (which is based on 50c from the government for every $1 you contribute). The level of co-contribution you are eligible to receive from the government reduces as your income rises.
Low income super contribution
If your adjusted taxable income is less than $37,000 per annum you will receive a ‘low income super contribution’ of up to $500. You will automatically receive this contribution from government regardless of whether or not you make any additional personal contributions into your super fund.
If you have a loan for an investment property or a geared investment portfolio, you may be able to claim a deduction for the interest you will incur for the next 12 months in the current year’s income tax return if you pre-pay the interest before 30 June 2016.
Pre-paying interest gives you the ability to bring forward the tax deduction (you may be entitled to in the following year) in to the current financial year. You can choose to pre-pay the interest for a period of less than 12 months and still receive the deduction this financial year, however it cannot be pre-paid for a period greater than 12 months.
To maximise your potential returns, you’ll need to provide evidence of the income you have received during the course of the financial year as well as receipts for any tax-deductible purchases you have made. This may include:
- Payslips from your employer or any other documentation that shows your salary, benefits and allowances.
- Statements that show any other forms of income such as rent, income from investments, or interest earned from term deposits.
- Business related travel expenses.
- Other work related expenses such as internet expenses, telephony charges, computer software and stationery. Note that you may need to indicate what proportion of the expense is work related.
- Motor vehicle expenses. If your vehicle is used for work purposes you may be able to claim a deduction for fuel, insurance, registration, repairs, maintenance, lease payments or interest charges. Note that you may need to provide evidence of these activities with receipts and a log book outlining work related travel.
- Receipts for dry-cleaning and laundry expenses (if you are required to wear a uniform to work).
- Receipts for any tax deductible donations you have made during the course of the year.
- Receipts for any work related education such as course fees, text books and stationery.
- You can also claim the cost of preparing last year’s tax return.
For more information about these end of financial year strategies and how they may apply to your specific circumstances, please contact us on 03 5224 1196 or firstname.lastname@example.org.
Capstone Financial Services
14 Bellerine Street
GEELONG VIC 3220
Capstone Financial Services is a Corporate Authorised Representative (No. 305345) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services Licence / Australian Credit Licence No. 223135. Information contained in this document is of a general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Capstone Financial Planning nor their directors or employees gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document.