Financial planner Elliot Watson explains seven key super and money issues to consider before July 1.
The end-of-financial-year sales see Australians flocking to the shops to bag-a-bargain to make their money go further. But most are unaware a lot more can be gained through your super – and there’s not a lot of work involved.
While potentially less exhilarating than the retail sales, end-of-financial-year planning can be just as beneficial. And with June 30, 2018 fast approaching, now is a fitting time to review your finances.
Below are my top tips* on how to bag a financial-savings bargain, especially when it comes to the tax-friendly concessions in superannuation.
1. Salary-sacrifice your bonus into super
Benefit: boost your super and get a tax saving of up to 30 per cent.
By salary-sacrificing you put your pre-tax money into super – thereby reducing your taxable income and the amount that you pay in tax that year. (Your salary-sacrifice contributions and other concessional contributions, such as compulsory employer and personal deductible contributions, are limited to $25,000 each year, which is the concessional contributions cap.)
The benefits of salary-sacrificing depend on your marginal tax rate. If you earn a bonus, a great savings strategy is to put it into your super before tax, giving you the potential to save up to 30 per cent in tax that you would otherwise pay.
For example, if you are in the highest marginal tax rate (45 per cent), you can place your bonuses directly into super and only pay 15 per cent tax on that income (generally if you earn less than $250,000 a year), saving you 30 per cent tax. Plus, if you don’t yet own your own home, you could use this strategy to help save for your first home deposit.
To take advantage of this strategy you need to put arrangements in place with your employer in advance. As not all workplaces accommodate salary-sacrifice, check first to see if this is possible.
2. Tap into the super co-contribution
Benefit: grow your super by up to $500
Under the government’s superannuation co-contribution scheme, for every after-tax dollar you contribute, up to $1000, the government will match your $1 with a co-contribution of up to 50¢.
If you are eligible, make a $1000 after-tax (non-concessional) contribution, and earn under $36,813 in the 2017-18 financial year, you could receive the maximum payment of $500 from the government.
The amount the government will co-contribute reduces on a sliding scale and hits zero once your total income reaches $51,813.
Check out the eligibility criteria at the Australian Taxation Office website.
3. Use the spouse contribution
Benefit: get a tax offset of up to $540 and grow your spouse’s super
Will your spouse earn less than $37,000 this financial year? If the answer is yes then it might be worth making super contributions on their behalf.
There is a maximum tax offset of $540 available when up to $3000 is contributed into your spouse’s superannuation. This is a tax offset, not a reduction in taxable income, therefore the spouse making the contribution gets a saving of up to $540 (for a spouse contribution of $3000) against their yearly tax bill.
The amount that can be offset is 18 per cent of one of the options below (whichever is less):
- $3000, which reduces by $1 for every $1 your spouse’s total income exceeds $37,000, completely phasing out if they earn more than $40,000
- the total amount contributed for your spouse up to a maximum of $3000 (i.e. 18 per cent x $3000)
For example, Jim’s wife earns $10,000 per year. If Jim contributes $1500 into his wife’s super account, he would receive a $270 (0.18 per cent x $1500) tax offset.
What else could you do?
Outside of superannuation there are some other matters to think about before the end of financial year to make your money and investments work harder for you.
4. Consider rejigging your investment portfolio
Benefit: potentially save on capital gains tax
So far 2018 has been a volatile year on the sharemarket and you may have some paper losses from shares or investments. It’s an opportune time to review your investments and check they still meet your needs before the financial year ends.
Re-jigging your portfolio – while beneficial in certain circumstance such as selling underperforming stocks or balancing your portfolio – can also trigger capital gains tax in some instances. If you are lucky enough to have made a capital gain, review your portfolio and identify if it’s appropriate for you to trigger any losses in the past 12 months to offset the gains, thereby reducing your overall gain and tax liability. Your financial adviser can help you figure that out.
Where possible it’s more beneficial to sell investments held for at least 12 months as this makes you eligible for the 50 per cent capital gains discount.
Another thing to consider, particularly if you have a low-income earning spouse, is to seek advice from your accountant as to whose name your investments are held. Having your spouse hold savings accounts and shares in their name could mean the difference between a marginal tax rate of 19 per cent and 45 per cent on dividends or interest earnings.
5. Bring forward expenses
Benefit: helps you save by reducing your taxable income
A way of saving at tax time is to look at bringing forward tax-deductible expenses into this financial year. This is even more beneficial if your taxable income is expected to be higher in 2017-18 than 2018-19.
For example, consider taking out income-protection insurance and pay the full year amount now (not in monthly instalments), or consider pre-paying interest on your investment loans. Such measures could reduce this year’s taxable income and therefore help you save.
6. Claim rental property deductions
Benefit: make the most of your deductions and save
Investment properties may provide opportunities for tax deductions. Speak to your accountant to ensure you claim all the deductions available to suit your circumstances. You may be able to claim immediate tax deductions such as interest on your investment loan, maintenance costs and leasing costs as well as other expenses over time such as depreciation, structural improvements, and lending costs such as stamp duty on a mortgage.
7. Purchase assets for your small business
Benefit: immediately write-off assets valued under $20,000
The immediate asset write-off for small businesses has been extended to June 30, 2018, and there's talk it will be extended further. Small businesses with an annual turnover of less than $10 million can deduct the cost of each depreciating asset (new and second-hand) they purchase that costs less than $20,000.
The asset must be purchased, installed and ready for use by June 30, 2018 to claim the deduction. This enables small business owners to immediately deduct the cost of an asset, avoiding having to depreciate the asset over time.