How to save on your tax this year
- Financial Planning
To listen to the full show click here.
The end of financial year is fast approaching, so it’s a great time to take stock on what opportunities may be available for you to reduce your tax bill and boost your financial plans at the same time. With a raft of superannuation changes coming in after 1 July this year, it is even more important to make sure you get full value from the possibilities before 1 July.
As always, it is best to seek professional advice when it comes to tax matters, so that your personal circumstances can be taken into account, but the ideas below may help prompt some discussion with your registered tax adviser and financial planner.
It’s all in the timing
If you think this year’s income may be higher than next year, then it may be worth considering ways to defer income until after 30 June. Consider the example of Ron, a consulting engineer, who runs a small practice where most of his projects run over several weeks or months and are not invoiced until the end of each project. He has had a bumper financial year, which he doesn’t expect to be able to repeat next year. He decides to hold off invoicing until after June 30 for projects scheduled to finish in the run up to the end of June. By doing this he reduces his taxable income for this financial year.
On the expense side, you may want to see if you can bring forward deductible expenses into this financial year, rather than paying them in the new financial year. Using Ron as an example again, he speaks to his financial planner to arrange to pre-pay next year’s deductible income protection premiums before 1 July this year, so that he gains the deduction this financial year.
Investment property opportunities
If you have an investment property then it may be possible to carry out any maintenance or improvements before the end of the financial year, as a way of boosting your deductible expenses in conjunction with your registered tax adviser.
Topping up super
One area that should be considered this year is your super. The big news is that contribution caps are reducing in the next financial year, so you may want to give your super a boost and take full advantage of the higher caps this financial year.
The current concessional (before tax) contribution caps are $30,000 if you are less than 49 years of age on 30 June 2016 and $35,000 if you are 49 years of age or older on 30 June 2016. In the new financial year the cap is being reduced to $25,000 regardless of age, so there may be incentive to maximise your contributions up to the cap in this financial year.
For non-concessional (after tax) contributions there is also a reduction in the cap after 1 July 2017, from $180,000 to $100,000 per year, so there may be incentive to maximise your contributions up to the cap in this financial year.
Make spouse super contributions
If your spouse is not employed or earns less than $13,800, then you may be able to take advantage of the spouse contribution scheme. This could give you a tax offset of up to $540 (depending on your spouse’s income) if you make an after-tax contribution of $3000 or more to your spouse’s super account.
Low-income super tax offset
If your earnings are less than $37,000 and you or your employer contributes concessional (before-tax) contributions to your super, the government’s Low Income Super Contribution scheme will refund the super contributions tax on those contributions directly back to your superannuation account (up to a maximum of $500).
The co-contribution incentive
Low income earners can also have the government chip in up to $500 to their super account if their income is below $36,021 and you make voluntary after tax contributions to your super. For every dollar you put in, the government will contribute 50 cents. If you earn over $36,021 you can still take advantage, but the co-contribution rate tapers off until it cuts out completely at an income of $51,021.
A further restriction will be placed on this scheme in the next financial year, whereby your total superannuation balance must be less than the transfer super balance cap of $1.6 million, as at the end of 30 June of the previous financial year. This makes it all the more important to find out if you are eligible this financial year.
Get some sound advice
Your registered tax and financial advisers are the professionals to see to ensure you are making all legitimate steps to minimise your tax this year, so seek their advice nice and early, rather than leaving things to the last minute.
What have you found to be useful in minimising tax? Share your ideas below.
- What is your most valuable asset?
- How can your business boost your retirement planning?
- Financial tips for a golden gap year
As a WYZA® reader you get a complimentary, obligation-free initial consultation when you book an appointment with a Bridges Financial Planner through WYZA®. Simply fill in the form below and a local Planner will be in touch.