There’s a lot to consider when it comes to end-of-year tax planning. Superannuation contributions, salary sacrifices, investment debt and your overall wealth strategy all need to be reviewed in the lead-up to 30 June to minimise risk and maximise opportunity. And on top of the regular end-of-year planning, COVID-19 has presented us all with some additional hurdles and unexpected opportunities, which should be factored in.
We wanted to provide some constructive communication and proactive advice around this time, so our BlueRock Private Wealth team has summarised some of the key items to consider in the lead-up to 30 June 2020. This information is intended to guide the conversations you have with your financial adviser and shouldn’t be accepted as financial advice specific to your unique situation. But it will no doubt help you to think about what's important when it comes to tax planning and to prepare for the next steps.
Keep in mind that tax planning is not just for those with complex financial needs; everyone can benefit from being proactive and strategic around tax time.
So, here are some tax planning strategies to consider in the lead-up to June 30 as well as after June 30 to make sure you’re tax planning for success.
Tax Planning Considerations in the Lead-up to June 30
Contributing to Superannuation
Personal Concessional Contributions and Salary Sacrifice
For wage earners, it’s not too late to consider topping up your Superannuation Guarantee (SG) contributions for the remainder of the financial year. This can be facilitated via Salary Sacrifice arrangements with your employer or, alternatively, by making a Concessional Contribution to superannuation with any surplus cash/savings which will, in turn, provide you with a tax deduction for the amount contributed.
In addition, if you have already been salary sacrificing or contributing, it is important to review the levels of contributions made to date to ensure you meet your target for the financial year (the maximum amounts are $25,000 per annum).
It’s important that if you intend to claim a tax deduction for personal super contributions, you will need to lodge the appropriate form with your super fund and you should take into consideration any Salary Sacrifice / Company SG Contributions detailed above to ensure you do not exceed your Concessional Contribution Cap for the year.
If you are between the ages of 65 and 75, you will need to satisfy the work test in order to make personal tax-deductible contributions. If you are 75 or over, you are not eligible to make personal tax-deductible superannuation contributions. The ability to make this contribution and the pros and cons should be discussed with your advisers prior to proceeding.
For business owners, considering company contributions to superannuation before 30 June up to the maximum levels can be an effective tax planning and wealth accumulation strategy. This should be considered as part of a wider tax planning exercise with your accountant, and with reference to your personal wealth management plan.
Unused Concessional Cap Carry Forward
From 1 July 2018, if you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, you may be entitled to contribute more than the general concessional contributions cap and make additional concessional contributions for any unused amounts.
This financial year (2019–20) is the first year you will be entitled to carry forward unused contribution amounts. Unused amounts are available for a maximum of five years, and after this period will expire.
As per last financial year, the non-concessional contribution cap remains at $100,000 per year. The bring forward rule (utilising a 3-year period) means a lump sum contribution of $300,000 may be possible. Please note if you have a total superannuation balance equal to, or more than $1.6 million, you will not be able to make non-concessional contributions. Also, those over age 65 are not eligible to take advantage of the bring forward rule and need to meet the work test to be eligible to make after tax superannuation contributions.
In some circumstances, you can contribute $3,000 of after-tax contributions into your ‘lower income earning’ spouse’s super account to receive a tax rebate of $540: a nice little 18% return on the $3,000 added towards your retirement. Year on year, that adds up…The income threshold for the ‘lower income earning’ spouse remains at $37,000 (lower threshold) and $40,000 (upper threshold).
If your total income is less than $54,837 and you make a personal non-concessional (after-tax) contribution to super, you may be eligible to receive a government co-contribution of up to $500.
Low Income Superannuation Tax Offset (LISTO)
For those with a taxable income of under $37,000, if your employer (or you) makes concessional (before-tax) super contributions on your behalf, then you can expect a refund of the 15% contributions tax that was deducted from your super account (of up to $500). The refund is paid directly to your superannuation account by the federal government and you do not need to apply.
Home Downsizing Contributions
If you are 65 years old or older and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home. The downsizer contribution needs to be made to superannuation within 90 days of receiving the proceeds of sale, which is usually at the date of settlement.
Accessing Your Superannuation
Annual Pension Payments
It’s important to ensure that you have drawn down an appropriate level of pension for the current financial year and considered next year’s Pension Payments as part of your planning.
This is particularly important where your funds supporting an Account Based Pension are held within a Self Managed Superannuation Fund. If your Pension Account is held via a Retail Platform, the product provider has measures in place to ensure your Minimum and Maximum payment amounts are met.
COVID-19 – Temporary Reduction in Minimum Payment Amounts
For many individuals, the losses in financial markets as a result of the COVID-19 crisis are having a negative effect on their superannuation account balance. To assist, the government has reduced the minimum annual payment required by 50% in the 2019-20 and the 2020-21 financial years.
Minimum pension payments are based on age and revised balances as at 30 June 2019:
COVID-19 – Financial Hardship / Early Release of Superannuation
The government has announced that individuals in financial stress as a result of COVID-19 may be eligible to access $10,000 from their superannuation before 1 July 2020. In order to qualify, an individual must be receiving certain government payments/allowances or have their work status impacted post 1 January 2020. It’s critical to be aware of the long-term impacts that accessing your superannuation early can have on your wealth accumulation, so make sure to check in with your financial adviser on this one.
Reviewing Your Investment Debt
Depending on your debt structure and tax position, it may be appropriate to consider prepaying interest on investment loans you have. This may allow you to claim additional tax deductions this year against your investment income. It may also be worth reviewing your debt structure to make sure it’s set up in the most efficient manner for asset protection and tax/cash flow management. Check in with a finance adviser to review your current loans and interest rates.
Capital Gains Tax Planning
If you have sold an asset for a gain during the current financial year, it will be appropriate to ensure that we have considered the effect of this on any aspect of your planning and that we have implemented any available strategies to reduce this liability.
Tax planning involves sitting down with your accountant and forecasting your likely tax position as at 30 June, factoring in your personal and business affairs. You should be aware of your likely position leading into 30 June and confident that effective strategies are being utilised. Some of these strategies, such as nominating Family Trust distributions, are critical for ensuring you achieve the right tax outcome and must be dealt with before 30 June.
It’s important to effectively integrate your wealth, accounting and tax advisers to ensure a holistic approach is considered.
Tax Planning Considerations After June 30
While there are multiple tax planning strategies available (depending on your individual circumstances) below are some important considerations to factor into your planning for next financial year. For the best results, you’ll need to be proactive and planning ahead.
Where you wish to take advantage of any of the superannuation contributions detailed above, it’s worth considering making them regularly throughout the year to ease the burden on cash flow at the end of financial year. It’s pretty simple to establish regular contributions into superannuation and your wealth adviser can easily facilitate this with you.
Spouse Superannuation Splitting
Individuals may be able to split certain superannuation contributions with their spouse, enabling them to boost their spouse's super savings with some of their own. If you're planning to split all or part of your contributions with your spouse for the previous financial year but you also want to claim a tax deduction for them, you must give the notice of intent to claim a deduction first.
Adjusting Superannuation Pension Payments
If you’re drawing regular pension payments, it may be worthwhile adjusting these based on your age and revised balance as at 30 June 2020:
COVID-19 - Financial Hardship / Early Release of Superannuation
As mentioned above, the government has announced that individuals in financial stress as a result of COVID-19 may also be eligible to access another $10,000 from their superannuation in the 2020-21 Financial Year. Again, there is certain criteria that must be met and it’s critical to understand the long-term impacts this may have on your wealth.
If you’re working with BlueRock Private Wealth, July and August is a good time to review your portfolio, given that we will have the end-of-financial year reports available. We are continually reviewing and considering varied investment options are part of our ongoing due diligence process.
As mentioned above, for those clients of ours whom we proactively advise regarding End-of-Financial-Year Planning, we will soon be in touch with you! If you’re not currently working with one of our advisers, we’d love to chat to you about how we can help maximise your wealth and minimise your risk.
Check out some more resources on our BlueRock website.
This post contains general information and does not take into account your personal objectives, financial situation or needs. We recommend that you consult a financial adviser if you require financial advice that takes into account your personal circumstances.