21 Mar Strategies for EOFY 2018
With the end of financial year (EOFY) approaching quickly, it’s now a great time to start thinking about some of the actions that you could be taken before 30 June to build your wealth tax-effectively.
Your key priorities may include:
- Maximising super contributions without exceeding the relevant caps
- Bringing forward deductible expenses
- Deferring taxable income; and
- Managing capital gains.
This is also the first EOFY since the super reforms came into effect so there are new contribution caps to take into account, as well as new opportunities for you to grow your wealth and pay less tax.
The concessional contribution (CC) cap for 2017/2018 is $25,000 and from 1 July 2017 all individuals who are eligible to make personal contributions can claim them as a tax deduction, regardless of their work status.
This is very beneficial for people who:
- Work for an employer who doesn’t permit salary sacrificing
- Works for an employer who does allow salary sacrificing, but it’s disadvantageous due to the reduction in entitlements; and
- Are currently salary sacrificing but want to make a top-up contribution to utilise their full CC cap.
Prior to making a contribution, it’s best to check what has already been contributed and consider any future contributions prior to 30 June.
Division 293 tax
The income threshold at which the additional 15% (‘Division 293’) tax is payable on CCs has reduced from $300,000 to $250,000 pa, effective 1 July 2017.
It may be still a tax effective strategy to make additional CCs if you are within the cap.
With CCs taxed at a maximum of 30% and investment earnings in super taxed at a maximum of 15%, both these tax points are more favourable when compared to the highest marginal tax rate of 47% (including the Medicare levy).
Non Concessional Contributions
You may want to make additional non concessional contributions (NCC) to top up your superannuation but there are some key points that you may be mindful of.
Check your balance – make sure your Total Super Balance (TSB) was below $1.6m on 30 June the previous year.
Check contributions – check your contributions this year and the previous two financial years and make sure the bring forward rule has not been triggered.
This year’s annual cap is $100,000 and depending on your (TSB) you might be able to contribute up to a further $300,000. If you have triggered the bring forward rule in previous years then these amounts will change.
From 1 July 2017, higher income thresholds apply when determining eligibility for the spouse contribution tax offset. You may be entitled to a tax offset of up to $540 on super contributions of up to $3,000 into your spouse’s super if your spouse’s income is $37,000 pa or less. This offset is gradually reduced for incomes above $37,000 and phases out at $40,000.
For those individuals on lower incomes who earn at least 10% of their income from employment or carrying on a business make an NCC, they may be eligible for a Government co-contribution of up to $500.
In 2017/18, the maximum co-contribution is available if you contribute $1,000 and earn $36,813 or less. A lower amount may be received if you contribute less than $1,000 and/or earn between $36,814 and $51,812.
Other EOFY strategies
Pre-paying expenses – Pre-paying deductible expenses can bring forward the tax deduction and reduce assessable income. Two examples are pre-paying up to 12 months premiums on an income protection policy held outside super and 12 months interest on a fixed rate investment loan.
Managing capital gains – By selling assets that trigger a capital loss, the loss can be used to offset capital gains realised this financial year. Make sure you don’t breach the ‘wash sale’ provisions and it should be appropriate to sell that asset. Another strategy to consider is deferring the sale of assets that would give rise to a capital gain until a future financial year. This defers paying capital gains tax (CGT). This could also reduce the CGT payable if your taxable income is sufficiently lower in the future financial year (eg you have retired) and/or they qualify for the general 50% CGT discount by extending the period of ownership beyond 12 months.
If you would like to know more, talk to Michael Sik at FinPeak Advisers on 0404 446 766 or 02 8003 6865.
Important information and disclaimer
The information provided in this document is general information only and does not constitute personal advice. 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. From time to time we may send you informative updates and details of the range of services we can provide. If you no longer want to receive this information please contact our office to opt out.
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