Smart End of Financial Year strategies 2016/17
Published 1 June 2017
With the end of the financial year approaching, it’s a great time to make smart decisions about your finances. Taking action before 30 June can open up more opportunities for you.
We know that there isn’t a one-size-fits-all solution to wealth management. So we’ve outlined 12 tax-effective strategies that you may benefit from. We can help you find what strategies are right for you, so you can benefit now and also save your retirement.
Smart Superannuation Strategies
Six super strategies that may help reduce your tax liability whilst building your super savings for your retirement.
|If you…||You may want to…||So you can…|
|1. Get more from your salary or bonus||Are an employee.||Sacrifice your pre-tax salary or bonus into super rather than receive it as cash.||– reduce tax on your salary or bonus by up to 34%
– take advantage of the contribution cap that applies in this financial year
|2. Make tax deductible super contributions||Earn less than 10% of your income2 from eligible employment (e.g. you are self-employed or not employed).||Invest in super by making concessional contributions.||– claim your contribution as a tax deduction- take advantage of the contribution cap that applies in this financial year|
|3. Make after-tax contributions
|Have an investment in your own name.||Cash out the investment and use the money to make a personal after-tax super contribution1.||– reduce tax on investment earnings by up to 34%
– increase your retirement savings
|4. Use super to manage Capital
|Make a capital gain on the sale of an asset this financial year and earn less than 10% of your income2 from eligible employment.||Invest the sale proceeds in super.||– claim a portion of the contribution as a tax deduction
– increase your retirement savings
|5. Get a super top up from the Government||Earn less than $51,0202 pa, of which at least 10% is from employment or a business.||Make a personal after-tax super contribution.||– qualify for a Government co-contribution of up to $500
– increase your retirement savings
|6. Boost your partner’s super and
reduce your tax
|Have a spouse who earns less than $13,8002 pa.||Make an after-tax super contribution on their behalf.||– receive a tax offset of up to $540
– increase your spouse’s retirement savings
Smart Insurance Strategies
Two insurance strategies that may help you benefit from tax concessions this financial year.
|If you…||You may want to…||So you can…|
|1. Buy insurance in super tax-effectively||– Are eligible to make salary sacrifice contributions, or
– Are eligible to receive Government co-contributions, or
– >Have a spouse who earns less than
$13,8002 pa, or
– Earn less than 10% of your income2 from eligible employment
|– Purchase life and total and permanent disability insurance through a super fund
– Make concessional contributions to your super fund
|– Benefit from tax concessions
– Make premiums more affordable
|2. Pre-pay income protection premiums and reduce this year’s tax||Are employed or self-employed||Pre-pay 12 months’ income protection insurance premiums||– Claim your tax deduction upfront
– Pay less income tax this financial year
Smart Investment Strategies
Four investment strategies that may help you improve your tax liability this financial year.
|If you…||You may want to …||So you can …|
|1. Offset a capital loss against a capital gain||Have received capital losses from your investments.||Utilise the capital losses against any capital gains.||– Manage your tax on investments more efficiently|
|2. Defer asset sales||Are thinking of selling a profitable asset this financial year.||Defer the sale until a future financial year.||– Manage your cashflow more efficiently|
|3. Pre-pay investment loan||Have (or are considering establishing) a geared investment portfolio.||Pre-pay 12 months’ interest on your investment loan.||– Manage your cashflow more efficiently
– Potentially pay less income tax this financial year
|4. Make better use of your tax refund||Receive a tax refund.||Use your refund to:
– Pay off non-deductable debts first
– Pay off your home loan and then borrow to invest
– Fund your daily living expenses and contribute your pre-tax salary into super
|– Save on interest
– Invest your refund outside of super
– Boost your super tax effectively
Smart Super Reform Strategies
The May 2016 budget announced key superannuation (super) changes that have come under much scrutiny. With a few subsequent amendments, the Bill was put before parliament in late November and has now been passed. These new measures were designed to improve the sustainability, flexibility and integrity of Australia’s super system, most of which come into effect from 1 July 2017.
|1. Introducing a $1.6 million transfer balance cap||Introducing a $1.6 million transfer balance cap which limits the amount that can be transferred to the retirement phase, where earnings are tax-free. This measure will also apply to death benefit income streams. Click here to read more.|
|2. Reducing the concessional contributions cap to $25,000||Reducing the concessional contributions cap to $25,000 for all taxpayers and introducing a concessional contributions catch-up regime for those with total super balances of less than $500,000. Click here to read more.|
|3. Reducing the non-concessional contribution cap to $100,000 pa||Reducing the non-concessional contribution cap to $100,000 pa (or $300,000 under the bring forward provisions), limiting the ability to make NCCs to people who have a total superannuation balance of less than $1.6 million and introducing transitional rules for those who triggered the bring forward rule prior to 1 July 2017. Click here to read more.|
|4. Increasing income eligibility for the spouse contribution tax offset||Increasing the annual income threshold from $10,800 to $37,000 for eligibility for the spouse contribution tax offset. Click here to read more.|
|5. Abolishing the anti-detriment payment.||An anti-detriment payment enables the refund of contributions tax paid during a fund member’s lifetime, which is then paid as a lump sum to certain dependent/s (spouse, former spouse, child including adult child) of a deceased fund member. From 1 July 2017, anti-detriment payments will no longer be able to be made. Click here to read more.|
|6. Removing tax exempt earnings for transition to retirement income streams||A transition to retirement (TTR) pension allows you to reduce your working hours but not your lifestyle by using TTR pension payments to supplement your income. From 1 July 2017, tax exemptions on super fund earnings for transition to retirement pensions will be removed. Click here to read more.|
|7. Lowering the threshold for Division 293 tax to an annual income of $250,000.||Division 293 reduces the tax concession on superannuation (super) contributions for individuals with an income greater than the limit in place. From 1 July 2017, this limit will decrease from $300,000 to $250,000. Click here to read more.|
|Super taxation thresholds for 2017/18||The ATO has released the super taxation thresholds and contribution caps that apply in the 2017/18 financial year.|
|Updated Centrelink and Aged Care fact sheets||The following updated fact sheets take into account the revised rates and thresholds that apply from 20 March 2017:• Aged care – for residents who entered care before 1 July 2014
• Aged care – for residents who entered care from 1 July 2014
• Centrelink Fact Sheet
|Contribute to super and offset capital gains tax||When contributing to super, claiming a portion of the contribution as a tax deduction could enable you to pay less capital gains tax and increase your retirement savings.|
|Convert business capital into tax-free retirement benefits||If you’re selling your business to retire, taking advantage of the CGT small business concessions could enable you to manage tax and get more money into super.|
|Convert your super into a tax-effective retirement income||Starting an account based pension with your super when you retire could enable you to receive a tax effective income and make your savings last longer.|
|Make tax-deductible super contributions||By making a personal super contribution and claiming the amount as a tax deduction, you may be able to pay less tax and invest more in super.|
|Make insurance more affordable||It may be more affordable to take out life and total and permanent disability (TPD) insurance in a super fund rather than outside super.|
|Sacrifice pre-tax salary into super||Contributing some of your pre-tax salary, wages or a bonus into super could help you to reduce your tax and invest more for your retirement.|
|Top up your income when cutting back work||If you plan to scale back your working hours, starting a transition to retirement pension could help you to replace your reduced income.|
|Top-up your super with help from the Government||If your income is under a certain threshold, then making personal after-tax super contributions could enable you to qualify for a Government co-contribution and take advantage of the low tax rate payable in super on investment earnings.|
Some of these strategies are best implemented prior to the end of financial year, speak to a Modoras Planner today on 1300 888 803 or:
1 It’s important to check for CGT implications before cashing out any investments.
2 Includes assessable income reportable fringe benefits and reportable super contributions. Other eligibility conditions apply.
These individual EOFY strategies were published by Modoras Pty Ltd ABN 86068034908 AFS and Credit License No. 233209. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.
Write-off bad debts
To be a bad debt, you need to have brought the income to account as assessable income, and given up all attempts to recover the debt. It needs to be written off your debtors’ ledger by 30 June. If you don’t maintain a debtors’ ledger, a director’s minute confirming the write-off is a good idea.
Write off any stock that is damaged or obsolete. Complete a stock take (if you are not using the simplified trading stock rules) and remember that stock can be valued at the lower of cost, replacement, or net realisable value. You can use different methods for different stock items.
Review your asset register and scrap any obsolete plant
Check to see if obsolete plant and equipment is sitting on your depreciation schedule. Rather than depreciating a small amount each year, if the plant has become obsolete, scrap it and write it off before 30 June. Small Business Entities can choose to pool their assets and claim one deduction for the pool. This means you only have to do one calculation for the pool rather than for each asset.
Repairs, consumables (office stationery etc.)
To claim a deduction for this financial year, consider paying for any required repairs and replenishing consumable supplies before 30 June.
Pay June quarter employee super contributions
Super contributions are deductible in the year they are paid. The June 2017 quarterly superannuation guarantee payment is due on 28 July. However, some employers choose to make the payment early by 30 June to bring forward the tax deduction instead of waiting another 12 months.
Don’t forget yourself
Superannuation can be a great way to get tax relief and still build your personal wealth. Your personal or company sponsored contributions need to be received by the fund before 30 June to be deductible.
Capital gains and losses
Neutralise the tax effect of any capital gains you have made during the year by realising any capital losses. These need to be genuine transactions to be effective for tax purposes. It may be possible to contribute assets with unrealised losses to superannuation in order to do this.
Directors’ fees and bonuses
Declare them before 30 June and providing the company is absolutely committed to them, you are entitled to the deduction even if they have not been paid. Again, a director’s minute is a good idea. The directors and employees only need to declare this income in the year of receipt, although they need to be formally notified of their entitlements by 30 June.
Where management fees are charged between related entities, make sure that the charges have been raised by 30 June. Where management charges are made, make sure they are commercially reasonable and documentation is in place to support the transactions. If any transactions are undertaken with international related parties then the transfer pricing rules need to be considered and the ATO’s documentation expectations will be much greater. This is an area under increased scrutiny.
Small Business Entities (SBE) with a turnover under $10m can claim an immediate deduction for prepaid expenditure provided the service period relating to the expenditure is less than 12 months and will end by the end of the next financial year. Non SBE taxpayers (Turnover over $10m) can only claim prepaid expenditure that is 1. Less than $1,000; 2 Required by Law; or 3. Paid under a contract of service such as salary and wages.
If you receive payments in advance of the goods and services being provided and you account for income on the accruals basis then there might be an opportunity to defer the inclusion of this income until a later year.
Deemed Dividends – Division 7A Loans
Minimum repayments need to be made by 30 June under the Division 7A Loan Agreement to avoid triggering a deemed dividend.
To reduce the interest payable, consider declaring dividend early in the financial year.
Purchase of depreciating assets – under $20,000
SBE taxpayers (turnover under $10m) can claim an immediate deduction for the purchase of a depreciating assets (such as plant, furniture, equipment or motor vehicle) that cost less than $20,000. The asset must be installed ready for use by 30 June to be deductible this year.
As always these tax opportunities should only be considered where they make commercial sense. Incurring expenses simply to claim a tax deduction often will not make sense from a commercial or cash flow point of view. If your require any further information or require specific advice regarding tax planning for your business please contact us on 1300 888 803 or:
These EOFY strategies were published by Modoras Accounting (UMG) Pty Ltd ABN 81 601 145 215. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.