With just weeks to go until the end of the financial year, it’s time to make sure your finances are as tax effective as possible.
Whether it’s your super, your savings or your salary, there are many actions you can take to improve your overall tax position.
Now is the time to make sure that you contribute as much as possible to your superannuation without breaching the contribution cap; these currently stand at a universal $25,000 for concessional contributions, regardless of age.[i]
When making voluntary concessional contributions, remember that these will be counted toward your concessional contribution limit in addition to your superannuation guarantee payments of 9 per cent of your salary (9.25% from 1 July 2013). Also, remember that bonuses that result in additional superannuation guarantee contributions can tilt you over the cap as can your employer paying costs such as super administration fees or insurance premiums on your behalf. If you breach your concessional contribution cap then those contributions may be subject to a further 31.5 per cent tax hit – in addition to the 15% contributions tax.[ii]
If your income is less than $46,920 then it may be worth taking advantage of the government’s co-contribution scheme. For example, if your income is below$31,920 and you make a $1,000 after tax contribution to your super, the government will make a co-contribution of up to $500.[iii] That’s a 50 per cent return on your money!
If you are considering retiring or starting a transition to retirement (TTR) pension, then consider starting it after June 1 because this will mean that you do not have to take any payments in the current financial year. This strategy gives you 13 months without having to draw down from your pension, with the advantage of keeping your money working longer in the pension phase where there is generally no tax payable on earnings.
For your non-superannuation investments, the end of the financial year offers an opportunity to offset any capital gains with capital losses. So for example if you sell your shares at a loss then you can use this loss to offset against any capital gains you made during this year. However, be careful not to sell shares at a loss and then immediately buy them back as the Australian Taxation Office may crack down on this practice, which it calls ‘wash sales’.[iv]
One way to be tax effective is to consider the potential benefits of bringing forward any expenses that are tax deductible into the current financial year and push out any income into the next financial year.
For example, you might consider paying interest on a loan or your income protection insurance premiums up to 13 months in advance.[v]
The end of the financial year provides the perfect time to speak with your adviser, assess your financial situation and set yourself up for an even more prosperous year to come.
[i] Australian Taxation Office, Key Superannuation rates and thresholds, concessional contributions caps. Last updated 27 February 2013. Viewed 26 March 2013 http://www.ato.gov.au/super/content.aspx?doc=/content/60489.htm&page=3&H3
[ii] Australian Taxation Office. Super contributions – too much super can mean extra tax. Last modified 3 July 2012, viewed 26 March 2013.
[iii]Institute of Chartered Accountants, Key Legislative Contribution Changes, Superannuation Government Co-Contributions.Last updated 30 July 2012, Viewed 26 March 2013. Superannuation Government Co-Contributions,
[iv] ‘Get a head-start on tax’, April 2011, ASX Investor Update, Viewed 26 March 2013, http://www.asx.com.au/resources/investor-update-newsletter/get-a-head-start-on-tax.htm
[v] Australian Taxation Office, Deductions for pre-paid expenses Last updated 28 July 2013, Viewed 26 March 2013
This information is provided by Charter Financial Planning Limited (Charter FP) ABN 35 002 976 294, an Australian Financial Services Licensee, Licence No. 234665, a wholly owned subsidiary of AMP and a member of the AMP Group. It is believed to be correct at the time of publication, however, no representation or warranty is given as to its accuracy. No liability is accepted by any company within AMP or their respective employees or directors for any statement or opinion or any error or omission or for any loss arising from reliance on the information contained in this document. Investments may only proceed by completing the relevant application form attached to a current Product Disclosure Statement (PDS). Fund managers will receive fees for their services out of which authorised representatives of Charter FP may be paid commission. Neither the return of capital nor the investment performance of any investment is guaranteed by Charter FP. Past performance is not indicative of future performance. Any advice given in this document has not been prepared taking into account your particular investment objectives, financial situation or needs. Any case studies in this publication are hypothetical are not meant to illustrate the circumstances of any particular individual. You should assess your particular investment circumstances prior to making any financial decisions. This taxation information is based on the continuation of present laws and their interpretation and is a general statement only. Individual circumstances may vary. From time to time we may bring to your attention products, services and other information that may be relevant to you. If at any time you no longer wish to receive information, you may opt out by contacting our office.