EOFY Strategies Tips & Checklist

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Super Strategies
Super Strategies

The lead up to 30 June can be a good time to maximise tax benefits that may be available to you inside super.

If you’re keen on taking advantage of potential tax benefits available inside super, or are looking at ways to rebuild your retirement savings (for instance, you may have made a withdrawal as part of the early release of super scheme), the lead up to 30 June could be a good time to act.

Certain contributions, which we explore below, may have the ability to reduce your taxable income, or see you pay less on investment earnings, but remember there will be things to consider.

Contributions that could create tax benefits

Tax-deductible super contributions

You may be able to claim a tax deduction on after-tax super contributions you’ve made, or make, before 30 June this year.

To claim a tax deduction on these contributions, you’ll need to tell your super fund by filing out a notice of intent. You’ll generally need to lodge this notice and have the lodgement acknowledged by your fund, before you file a tax return for the year you made the contributions.

Putting money into super and claiming it as a tax deduction may be of particular benefit if you receive some extra income that you’d otherwise pay tax on at your personal income tax rate (as this is often higher).

Similarly, if you’ve sold an asset that you have to pay capital gains tax on, you may decide to contribute some or all of that money into super, so you can claim it as a tax deduction. This could reduce or even eliminate the capital gains tax that’s owing altogether.

Government co-contributions

If you’re a low to middle-income earner and have made (or decide to make before 1 July 2021) an after-tax contribution to your super fund, which you don’t claim a tax deduction for, you might be eligible for a government co-contribution of up to $500.

If your total income is equal to or less than $39,837 in the 2020/21 financial year and you make after-tax contributions of $1,000 to your super fund, you’ll receive the maximum co-contribution of $500.

If your total income is between $39,837 and $54,837 in the 2020/21 financial year, your maximum entitlement will reduce progressively as your income rises.

If your income is equal to or greater than the higher income threshold $54,837 in the 2020/21 financial year, you will not receive any co-contribution.

Spouse contributions

If you’re earning more than your partner and would like to top up their retirement savings, or vice versa, you may want to think about making spouse contributions.

If eligible, you can generally make a contribution to your spouse’s super fund and claim an 18% tax offset on up to $3,000 through your tax return.

To be eligible for the maximum tax offset, which works out to be $540, you need to contribute a minimum of $3,000 and your partner’s annual income needs to be $37,000 or less.

If their income exceeds $37,000, you’re still eligible for a partial offset. However, once their income reaches $40,000, you’ll no longer be eligible, but can still make contributions on their behalf.

Salary sacrifice contributions

Salary sacrifice is where you choose to have some of your before-tax income paid into your super by your employer on top of what they might pay you under the superannuation guarantee.

Salary sacrifice contributions (like tax deductible contributions) are a type of concessional contribution and these are usually taxed at 15% (or 30% if your total income exceeds $250,000), which for most, means you’ll generally pay less tax on your super contributions than you do on your income.

If you’re in a financial position to set up a salary sacrifice arrangement, this needs to be organised before the start of the new financial year, so talk to your employer or payroll division and have the arrangement documented before 30 June.

Important things to consider

  1. There are limits on how much you can contribute. If you exceed super contribution caps, additional tax and penalties may apply. Read more about what contribution caps apply and changes that will apply next financial year.
  2. Contributions need to be received by your super fund on time (i.e. before 30 June) if you’re planning on claiming a tax deduction, or obtaining other government concessions, on certain contributions when you do your tax return.
  3. A total super balance cap of $1.6 million is currently in place when it comes to making non-concessional contributions. From 1 July 2021 that cap will increase to $1.7 million. If your total super balance exceeds this cap, you will not be able to make non-concessional contributions and may not qualify for certain other government concessions.
  4. A work test applies if you’re over age 67 and wanting to make voluntary contributions – unless you’re eligible to use the recent retiree work test exemption.
  5. There’s a limit on how much super you can transfer into a pension and upcoming changes could impact whether you move super savings now or later.
  6. The government sets general rules around when you can access your super, which typically won’t be until you reach your preservation age and meet a condition of release, such as retirement.

Further information

For further information about these strategies and how you may benefit please contact me at (03) 9886 0623 or email: paul@mentorfs.com.au.

Source: AMP

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Tax tips and tax return checklist
Tax tips and tax return checklist

To help you complete your tax return, especially if you’ve been working from home, this checklist outlines income and expenses you need to disclose to the Australian Taxation Office (ATO) when lodging your return. We’ve also provided an overview of the types of tax offsets and deductions you may be entitled to claim plus other handy tax tips.

Income

  1. Gross salary, wages, earnings, allowances, benefits, tips and directors’ fees as shown on the pay as you go (PAYG) payment summary supplied by your employer.
  2. Lump sum and termination payments as per the PAYG payment summary supplied by your employer.
  3. Annuities or other pensions, such as account-based pensions, as per PAYG payment summary or statements provided by your financial institution or super fund.
  4. Taxable Government allowances or pensions, such as the JobSeeker Payment, Youth Allowance and Age Pension.
  5. Interest earned as shown on your bank, mutual bank or credit union statements.
  6. Dividends received or reinvested, including any franking credits attached as shown on the dividend statements provided by the company.
  7. Distributions from partnerships and trusts, including managed funds, as shown on the distribution statement provided by the partnership or trust.
  8. Details of any capital gains or losses incurred from the sale of (or other dealings involving) capital gains tax (CGT) assets, such as shares and property. This includes dates and values of acquisitions and disposals, as shown on purchase and sale documents.
  9. Rent received from investment properties as shown on real estate agent statements or your personal records.
  10. Details of any foreign source income (including overseas pensions) earned or received, foreign assets held and any foreign taxes paid.

Expenses

Work-related expenses that have not been reimbursed by your employer

  1. Deductible work from home (WFH) expenses during COVID-19 pandemic not reimbursed by your employer. For more information please see page 2.
  2. Motor vehicle expense details for work-related travel in a personal vehicle, including the work-related kilometres travelled. This excludes travel to and from work.
  3. Other work-related travel expenses, such as taxis, public transport and bridge tolls.
  4. Purchase of compulsory uniforms, protective clothing and laundry costs for work-related purposes.
  5. Self-education expenses, including fees, books, stationery, travel and parking.
  6. Union fees and memberships to industry and professional organisations.
  7. Purchase of sun protection, hats, sunglasses and sunscreen if you need sun protection at work.
  8. Purchase of tools of trade or equipment for work-related purposes.
  9. Telephone accounts for work-related calls.
  10. If you are paid an overtime meal allowance under an award, you can claim up to the reasonable allowance expense amount set out by the ATO.
  11. Attendance fees and travel for work-related seminars, conferences and conventions.
  12. Books, journals, subscriptions and your professional library expenses.
  13. Home office set-up expenses such as depreciation on purchase of equipment, including computers, telephones and furniture. Details of home office running expenses such as heating, cooling, lighting and cleaning.

Investment-related expenses

  1. Telephone accounts for investment-related calls.
  2. Attendance fees and travel for investment seminars, conferences and conventions.
  3. Interest paid and fees charged on money borrowed for investments, such as shares.
  4. Bank fees incurred on investment-related activities and accounts.
  5. Property rental expenses, including advertising, council and water rates, insurance, interest on loans, real estate management fees, repairs and maintenance, lease preparation, depreciation and capital works (such as buildings and structural improvements) deductions. Please note, from 1 July 2017, travel expenses relating to inspecting, maintaining, or collecting rent for a residential rental property cannot be claimed as a deduction.

General expenses

  1. Donations of $2 or more to registered charities.
  2. Tax preparation fees, including travel to your tax agent.

Tax off sets and deductions

You may be entitled to the following tax off sets (rebates) and deductions for the year ended 30 June 2021.

Private health insurance offset

Depending on your income and age, you may be eligible for a tax off set of up to 32.8% on your health insurance.

If you haven’t claimed a reduced premium from your health fund, then you can claim an off set in your tax return.

Deductions for expenses related to working from home due to the COVID-19 pandemic

If you are working from home due the COVID-19 pandemic and incur expenses that are not reimbursed by your employer, you may be able to claim them as a tax deduction. The expenses must be directly related to working from home and you need to keep a record of your working from home hours and your expenses. There are three ways you can choose to calculate additional running expenses:

Shortcut method – A deduction of $0.80 for each hour worked from home due to the COVID-19 pandemic is allowed if you incur additional deductible running expenses as a result of working from home.

Fixed rate method – allows:

  1. a rate of $0.52 per hour for the cost of utilities, cleaning and depreciation of office furniture
  2. work-related phone and internet expenses, computer consumables and stationery
  3. work-related depreciation of a computer, laptop or similar device

Actual cost method – claim the actual work-related portion of all running expenses, calculated on a reasonable basis.

For more details, please refer to the ATO website under ‘employees working from home’.

Deductions if your home is not your principal place of business

Deductions you may be able to claim

You do have a work area

You don’t have a work area

Cost of using a room’s utilities such as gas and electricity

Yes

Yes

Work-related phone costs

Yes

Yes

Decline in value (depreciation) of office equipment such as desks, chairs and computers

Yes

Yes

Decline in value (depreciation) of curtains, carpets and light fittings

Yes

No

Occupancy expenses such as rent, mortgage interest, insurance and rates

No

No

Source ATO: https://www.ato.gov.au/general/property/your-home/working-from-home

Spouse super contribution offset

If you made personal superannuation contributions on behalf of a spouse, there is a tax off set of up to $540 per year. This is available for spouse contributions of up to $3,000 per year, where your spouse earns less than $37,000 per year, and a partial tax off set for spousal income up to $40,000 per year.

Senior Australians pensioner tax offset

If you are eligible for the senior Australians pensioner tax off set (SAPTO) you are able to earn more income before you have to pay tax and the Medicare levy.

Super tax hints

Super is a tax-effective way to save for retirement. The following section contains some tips to help you maximise your super.

Contribution limits

For the 2020/21 financial year the maximum non-concessional (or after-tax) super contributions are capped at $100,000 per person per year or up to $300,000 over three years using the bring-forward provisions.

The ability to make non-concessional contributions and take advantage of the three year bring-forward provision is subject to your total super balance as at 30 June of the previous financial year, your age and whether you have satisfied the work test (if between ages 67–74).

Concessional contributions, or those made with pre-tax money, are limited to $25,000 per person per year. Unused concessional contribution caps from the 2018/19 financial year and later years may be used for up to five financial years as long as your total superannuation balance on 30 June prior to the financial year of contribution is less than $500,000.

Please note, voluntary concessional contributions, such as salary sacrifice or personal deductible contributions, are subject to age restrictions and the work test and work test exemption (if between ages 67–74).

Salary sacrifice

A salary sacrifice strategy allows you to make contributions to super from your pre-tax salary. Your salary is then reduced by the amount you choose to sacrifice.

The benefits of this are two-fold: not only does your super balance increase, but this strategy could also reduce your taxable income and therefore the amount of tax you pay. Also, super contributions are concessionally taxed at just 15% (up to 30% for individuals with income over $250,000) instead of your marginal tax rate, which could be as high as 47%.

Personal deductible contributions

Since 1 July 2017, if you are eligible to contribute to super, you may make voluntary personal contributions and claim a tax deduction up to your concessional contribution cap.

This gives you greater flexibility to top up your concessional contributions made by your employer, especially if your employer does not off er salary sacrifice. For example, you can time your final contributions leading up to 30 June each year and make the most of your concessional contribution limits and the resulting tax benefits.

Super co-contributions

If you receive at least 10% of your income from employment or self-employment and you earn less than $39,837, you may be eligible for the maximum super co-contribution of $500 from the Government for an after-tax contribution to super of $1,000. The co-contribution phases out once you earn $54,837 or more.

The ATO uses information on your income tax return and contribution information from your super fund to determine your eligibility.

Super co-contributions

If you want to split your super contributions with your spouse, this can usually only be done in the year after the contributions were made. Therefore, from 1 July 2020, you may be able to split up to 85% of any concessional (or pre-tax) contributions you made during the 2019/2020 financial year with your spouse.

Apart from making the most of your super, there are other ways you can minimise your tax liability.

Capital gains and losses

A capital gain arising from the sale of an investment property or shares and capital losses can be used to off set the capital gains. For example, you may have sold investments that were no longer appropriate for your circumstances and any capital losses realised as a result can be off set against any capital gains you have realised throughout the year. Unused losses can be carried forward to off set capital gains in future years.

Please seek financial advice before making changes to your investments.

Prepaying interest

If you have an investment loan you can arrange to prepay the interest on that loan for up to 12 months and claim a tax deduction in the same year the interest was prepaid.

Negative gearing

Negative gearing is another strategy used to manage tax liabilities. Geared investments use borrowed funds to enable a higher level of investment than would otherwise be possible. Negative gearing refers to the cost of borrowing exceeding the income generated by the investment.

This excess cost can reduce the tax you pay on other income. If you invest in shares, you may obtain imputation credits which can be used to further reduce the amount of tax you pay.

Income protection insurance

If you hold an income protection policy in your name, then any premium payments you make are tax deductible.

Resident tax rates for 2020-21

Note: Medicare levy of 2% will also apply where applicable.

Individual tax rates for the year-ended 30 June 2021

Up to $18,200

Nil

$18,201 to $45,000

19% of the portion over $18,200

$45,001 to $120,000

$5,092 + 32.5% of the portion over $45,000

$120,001 to $180,000

$29,467 + 37% of the portion over $120,000

Over $180,000

$51,667 + 45% of the portion over $180,000

Further information

For further information please contact me at (03) 9886 0623 or email: paul@mentorfs.com.au.

Source: IOOF