Tax time is fast approaching. Now, before the end of the financial year, is the ideal time to review your financial position and make sure you are capitalising on Government initiatives which can help your money go further. Listed below are several areas where you can take advantage of current policies and save.
1. Salary Sacrifice Bonuses Into Superannuation
Boost your retirement savings
Salary sacrificing enables you to put pre-tax money into superannuation, this reduces your taxable income and therefore the amount of tax you pay that year. The benefits of salary sacrificing depend on your marginal tax rate, so differ from person to person. If you earn bonuses, a great savings strategy is salary sacrifice your bonuses. You have the potential to save up to 30% tax. For example, if you are in the highest marginal tax rate (45%), you can place your bonuses directly into super and only pay 15% tax on that income, thus providing a saving of 30% tax.
There are limits to how much you can salary sacrifice each year depending on your age. See the table below. If the budget measures are passed, then the annual concessional (pre-tax) contribution limit will be reduced to $25,000 for everyone from 1 July 2017, therefore it makes financial sense to take full advantage of the higher limits this year while you can.
To take advantage of this strategy you need arrange it with your payroll department before the end of the financial year. Salary sacrificing is not compulsory in all work places, so a first step is to check with your payroll department whether it is possible within your organisation.
2. Superannuation Co-Contribution
Add to your superannuation and have the government top it up
Under the superannuation co-contribution scheme for every after tax dollar you contribute the government will match it with a co-contribution of 50 cents.
If you are eligible and you make under $36,021 in the 2016/17 financial year then you could receive the maximum payment of $500. The co-contribution amount reduces on a sliding scale to zero once your total income reaches $51,021 or more (see the table below). To see if you are eligible refer to the ato.gov.au website.
3. Spouse Contributions
Help your low income spouse build super and receive a tax offset of up to $540
If your spouse earns less than $13,800 this could be an option for you. Making a super contribution on behalf of your spouse provides a maximum tax offset of $540 when up to $3000 is contributed into your spouse’s superannuation. This is a tax offset, not a reduction in taxable income, therefore the higher earning spouse gets a saving of up to $540 (for the maximum spousal contribution of $3000) against their yearly tax bill.
The amount that can be offset is 18% of the lesser of:
- $3000 reduced $1 for $1 by the amount by which the spouse’s total income exceeds $10,800, or
- the total amount contributed by the spouse up to a maximum of $3000 (i.e. 18% x $3000)
In instances where the contribution is less than $3000, the tax offset amount is calculated at 18%. For example Tom’s wife earns $9,000 per year. If Tom contributes $2000 into his wife’s superannuation account, he would receive a $360 (0.18 x 1500) tax offset.
4. Re-Jig Your Portfolio
Potentially reduce capital gains tax
With another year of volatile share markets, you could have some paper losses from share or investments. Before the EOFY it is a great time to review your investments and check they are still working their hardest for you. Re-jigging your portfolio whilst beneficial in certain circumstance (selling underperforming stocks or balancing your portfolio), however it can also trigger capital gains tax in some instances. If you are lucky enough to have made a capital gain, review your portfolio as a whole and identify if you can trigger any losses in the last 12 months to offset the gains, thereby reducing your overall gain and tax liability. Where possible it is more beneficial to sell investments held for at least 12 months, as this makes you eligible for the 50% capital gains discount.
Another thing to consider, particularly if you have a low income earning spouse, is to review whose name the investment is in. Having your spouse hold saving accounts and shares in their name could mean the difference between a marginal tax rate of 19% and 45% on interest or dividend earnings.
5. Pay Expenses, Delay Income
Helps you save by reducing your taxable income
A way of saving at tax time is to look at bringing forward tax deductible expenses into this financial year and conversely look at delaying income to the next financial year. This is even more so beneficial if your taxable income is going to be higher in 16/17 than 17/18.
Doing things such as paying the full year of income protection insurance now (not in monthly instalments) or pre-paying 12 months’ interest on a margin loan, pre-paying memberships to professional organisations or work related subscriptions to professional publications could positively impact your deductions in this financial year. This strategy is particularly beneficial for those with small businesses.
6. Claim Rental Property Deductions
Make the most of your deductions and save
Investment properties provide many opportunities for deductions. Speak to your accountant and make sure you claim all the deductions available to you. You can claim immediate deductions such as interest on your investment loan, maintenance costs and leasing costs. Additionally, you can claim other expenses over time such as depreciation, structural improvements, and lending costs (stamp duty etc.).
There are many savings to be made. It is important to stress though, that time is of the essence. They must be executed in this financial year; otherwise you will miss out and must wait till 2017/18 to take advantage of the initiatives. All the strategies above may not be relevant to you and your financial situation, but it provides good insight into how being more tax aware and strategic with your financial planning can help you save money.
Contact Elliot Watson Certified Financial Planner for advice to consider the above strategies for yourself. Phone 02 4038 1623 or email firstname.lastname@example.org
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Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429. The information (including taxation) in this article does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.