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The end of financial year is almost here, so it’s that time again to make some last-minute changes to improve your financial position and keep more of your hard earned cash in your hip pocket.
Here are a few simple strategies you can still implement now to ensure you’re not hit with a hefty tax bill come July 1:
People can make a difference to the way they and their spouse build their super for retirement – and reduce their tax bill at the same time – by making spouse contributions. You can claim an 18 per cent tax offset on the first $3,000 contributed on behalf of a spouse if they earn less than $10,800.
By salary sacrificing some of your pre-tax salary into super you can reduce the amount of tax you pay in the future – and boost your super balance all at once because the contribution and earnings from it are taxed at the low rate of 15 per cent. Currently, before-tax superannuation contributions (including salary sacrifice contributions) are limited to $25,000 per person per annum – before-tax contributions above this limit will not be taxed at 15 per cent and may attract an additional penalty tax.
Self employed people can’t salary sacrifice but they can boost their super and get a tax deduction at the same time. The money they contribute into their super also will be taxed at only 15 per cent.
Income splitting is one of the easiest and most effective ways for couples to pay less tax on their investments. Under this strategy, investments are either held evenly, or put in the name of the spouse who earns the least income. This can put a dent on a person’s tax bill as income earned off the investment and capital gains are taxed at the lower income-earning spouse’s marginal tax rate.
Under this scheme, you could receive a cash boost of up to $500 to your super from the government if you contribute up to $1,000 of your own savings into super and earn less than $31,920 for the current tax year. The maximum amount of the government’s co-contribution available then gradually reduces until it reaches zero for those earning over $46,920. If you are eligible, be sure to consider making a personal after-tax superannuation contribution before June 30 – there are not too many other strategies that deliver a 50 per cent guaranteed return.
Many people do not realise that income protection insurance premiums are tax deductible and simply overlook claiming their premiums at tax time. It’s also a good time to review your insurance and consider prepaying your income protection premiums for the year ahead in a lump sum before June 30.
If you have realised a capital gain this financial year, then you could consider selling other assets at a loss. This helps reduce the overall tax liability as crystallised capital losses can be used to offset realised capital gains occurring in the same financial year.
Even if the value of geared investments has fallen, interest still needs to be paid. The good news is that it remains a tax deductible expense, where it has been properly incurred in producing assessable income for a taxpayer. By prepaying interest expenses the tax deduction can be brought forward into the current financial year.
*Mohamed Said is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706. Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.
