The end of financial year will soon be upon us. But once you get past all the build-up and hype over sales and bargains, there is a few key things you could be doing to get more bang for your buck, and we’re not talking about cheap flat-screen TVs.
Salary Sacrificing Bonuses
The advantage of salary sacrificing a work bonus into your super is that you can put in pre-tax money, boosting your super and reducing your taxable income at the same time. This basically means you are reducing the amount of tax you will need to pay in the year. These benefits depend on your own individual marginal tax rate and the concessional contributions cap applies, which is a limit of $25,000 per year.
To put this into perspective, if you pay tax at the highest marginal tax rate of 47% (includes Medicare levy), you can contribute a bonus straight into super and pay only 15% tax on that income. This is a saving of 32% tax. If your income surpasses $250,000, you may be up for an additional 15% tax on these contributions. Even Superannuation Guarantee Contributions (contributions made on behalf of your employer) incorporate these limits. Although this can be an excellent strategy to take advantage of the EOFY, you will need to check first with your employer to ensure that this is possible in your workplace. You would also need to organise with your payroll department ahead of time to set this up, as well as making sure with your employer that you are within the time limit for salary sacrificing a bonus.
Making a Co-contribution to Your Super
When talking about bang for your buck, this could be an opportunity to make up to $500. Every after-tax dollar that you contribute, the government will match it with their own payment of fifty cents. This is what is known as the government’s co-contribution scheme and if you qualify and make under $38,564 in the 2019/2020 financial year, then there is a possibility to receive the maximum amount of $500. As your income increases, the amount that the government will add to your contributions will start to reduce on a sliding scale. As seen in the table below, once your gross income reaches $53,564, you will not receive any co-contribution. Visit the ATO to find out if you qualify.
|Income||Personal super contribution of $1,000||Personal super contribution of $800||Personal super contribution of $500||Personal super contribution of $200|
|$38,564 or less||$500||$400||$250||$100|
|$53,564 or more||$0|
Making Contributions for Your ‘Other Half’
Making a spouse super contribution gives the opportunity to save up to $540 in tax. If your significant other earns less than $37,000 then you might want to consider the idea of a super contribution on their behalf. This isn’t actually a reduction in your taxable income, it’s a tax offset, so the spouse making the contribution (the higher earner) will achieve a saving from their tax of up to $540 if making an after tax contribution of $3,000, which is the max contribution for spouses.
The tax offset is calculated as 18% of the lesser of:
- $3,000 minus the amount over $37,000 that the lower income earning spouse earned
- the total amount contributed by the spouse up to a maximum of $3,000 (i.e. 18% x $3,000)
The contributing spouse is entitled to a tax offset of $540, being 18% of $3,000. In instances where the contribution is less than $3000, the tax offset amount is calculated at 18%.
For example, Ben’s wife earns $10,000 per year. If Ben contributed $2000 (after tax) into his wife’s superannuation account, he would receive a $360 (0.18 x 2000) tax offset.
Rework Your Portfolio to Reduce Capital Gains Tax
Before this financial year is out, it is a great idea to ensure that your investment portfolio is still meeting your requirements and expectations. You may consider reworking and rebalancing your portfolio, as well as selling off any underperforming shares. Reviewing your portfolio can be useful in certain scenarios, however it can also activate capital gains tax in some instances. If you are lucky enough to have made a capital gain, review your portfolio to work out if you can trigger any losses in the last 12 months to offset the gains, so you can decrease your overall gain and tax liability. If feasible, it is favourable to sell investments held for at least 12 months, as this makes you eligible for the 50% capital gains discount.
If you have a low-income earning spouse, you may also give thought to whose name the investment or savings account is in, but it is best to seek tax advice on this.
Bring Forward Your Expenses, Reduce Your Taxable Income
A potential strategy to save at tax time is to bring forward those expenses that are tax deductible to this financial year and to possibly delay some income to enter in the next financial year. For example, you might also want to look at the idea of paying the years’ worth of income protection or prepaying margin loan interest in one hit before the end of the financial year, as opposed to regular instalments. Paying off yearly professional memberships or subscriptions related to work are another clever way to take advantage of tax savings.
While these tips won’t see you jumping on any click frenzy sales or lining up to snag a bagful of bargains, now is an excellent time to get smart and tax aware, in order to save or even make some money, which could be just about as satisfying.
Everyone’s financial scenario is different, so some of these tips may or may not apply to your situation. For specific advice, speak to a financial adviser to work out a strategy to meet your individual goals.
Get in contact with Elliot Watson Financial Planning today 02 4038 1623.
The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser.
The views expressed in this publication are solely those of the author; they are not reflective or indicative of licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author.
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.