There’s a lot to consider when it comes to end of financial year planning. Superannuation contributions, minimum mandatory pensions, 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.
As always, the BlueRock Private Wealth team aim to provide constructive communication and proactive advice to our clients around this time, so in this article we’ve shared some of the key items that you should consider in the lead up to 30 June 2021.
Keep in mind that end of financial year planning is not just for those with complex financial needs; everyone can benefit from being proactive and strategic around this time. You should consider obtaining advice specific to your unique situation, particularly with the recent Federal Budget announcements that may introduce some opportunities for you.
End of Financial Year Planning Consideration 1: 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 (a “personal tax deductible” contribution) with any surplus cash/savings which will, in turn, provide you with a tax deduction for the amount contributed. For the latter, it’s important that you lodge the appropriate form with your super fund in order to claim a tax deduction on your contribution.
Before you do make any top up’s to superannuation though, remember to review the levels of contributions made to date to ensure you are within the limit for this financial year (capped at $25,000).
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. To recap, the work test requires you to demonstrate that you’ve worked at least 40 hours during a consecutive 30-day period. If you are 75 or over, you are not eligible to make personal tax-deductible contributions.
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. Unused amounts are available for a maximum of five years, and after this period they will expire.
The non-concessional contribution cap remains at $100,000 this financial year. The bring forward rule (utilising a 3-year period) means a lump sum contribution of $300,000 may be possible.
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.
Please note that the contribution caps are indexed from 1 July 2021, so you should consider if triggering the bring forward rule now is the right thing to do for you.
In some circumstances, you can contribute $3,000 into your “lower income earning” spouse’s superannuation fund to receive a tax rebate of $540: a nice little 18% return on the $3,000 added towards your retirement. The income threshold for the “lower income earning” spouse remains at $37,000 (lower threshold where you’ll be entitled to the full tax rebate) and $40,000 (upper threshold where you’ll be entitled to a portion of the tax rebate, with none for income above $40,000).
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 contributions on your behalf, then you can expect a refund of the 15% contributions tax that was deducted from your superannuation account (of up to $500).
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.
End of Financial Year Planning Consideration 2: Accessing Your Superannuation
Annual Pension Payments
It’s important to ensure you have drawn 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 account-based pension 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 Annual Pension 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.
Minimum pension payments are based on age and revised balances for the 2021 financial year are as follows:
End of Financial Year Planning Consideration 3: Reviewing Your Investment Debt
Depending on your debt structure and tax position, it may be appropriate to consider pre-paying 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 lending specialist to review your current loans and interest rates.
End of Financial Year Planning Consideration 4: Capital Gains Tax Planning
If you have sold an asset for a gain during the current financial year, it will be appropriate to ensure you consider the effect of this on any aspect of your planning and implement available strategies that may reduce this liability.
End of Financial Year Planning Consideration 5: Tax Planning and Forecasting
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.
End of Financial Year Planning Consideration 6: What Happens Next?
While there are multiple end of financial year planning strategies available (depending on your individual circumstances), there are equally as many important considerations to factor into your planning for the next financial year. For the best results, you’ll need to be proactive and plan 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 financial 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 Annual Pension Amounts
If you’re drawing regular pension payments, it’s important to note that the temporary reduction in minimum amounts due to COVID-19 ends in the 2021 financial year.
So, it may be worthwhile adjusting your annual pension amounts from 1 July 2021:
If you’re working with BlueRock Private Wealth, the July to August months are generally a good time to review your portfolio and investment strategy, given that end of financial year reports will be made available.
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. Please get in touch with a BlueRock Private Wealth adviser.
Check out some more resources on our BlueRock website:
- 2021 Federal Budget Wrap-Up
- Updates To Superannuation Contribution Caps 2022
- Top Tax Planning Strategies For High-Income Earners
This post contains general information and does not take into account your personal objectives, financial situation or needs.
The information in this document is intended as general information only and should not be considered as advice on any matter and should not be relied upon as such. This information has been prepared without taking into account any individual objectives, financial situation or needs. You should therefore consider the appropriateness of the information before acting or seek advice before making any financial decisions.