Make the most of end of financial year (EOFY) opportunities
Maximise concessional contributions
Concessional contributions may reduce your taxable income and the amount of tax you pay as an individual. These contributions are generally taxed at 15% (1) within superannuation which may be lower than your marginal tax rate. Concessional contributions include employer contributions, amounts salary sacrificed during the year and personal contributions for which a tax deduction is claimed. Concessional contributions are capped at $25,000 for the 2020/21 income year. If certain requirements are met, individuals can carry forward unused amounts from the 2018/19 and 2019/20 financial years and make contributions above the annual cap without triggering penalties.
Maximise non-concessional contributions
Non-concessional contributions are contributions made from after tax income or savings. Although these contributions do not reduce your taxable income, you may still benefit from reduced investment earnings tax of 15% instead of investing the amount outside of superannuation where earnings are taxed at your marginal tax rate. These contributions are not taxed on entry to superannuation and form part of your tax-free component. Non-concessional contributions are capped at $100,000 for the 2020/21 income year. If certain requirements are met, individuals can bring forward two years of annual caps and contribute up to $300,000 before 30 June 2021 without exceeding the cap.
Accessing the Government co-contribution
Individuals with assessable income (2) of below $54,838 may qualify for the government co-contribution of up to $500 if they make a non-concessional contribution of $1,000 before 30 June 2021. To qualify for the co-contribution:
- at least 10% of assessable income must be received from employment or a self-employment arrangement
- the individual must be below age 71 at the end of the financial year
- they must have Total Superannuation Balance of less than $1.6m on 30 June 2020 and;
- they must lodge a tax return for the 2020/21 income year
Make a spouse contribution
Couples with one spouse earning a low income or no income, may benefit from the spouse tax offset if the high-income earner makes a spouse contribution into the low-income earner spouse’s superannuation. The maximum offset that can be claimed is $540 where the low-income earner spouse’s income is below $37,000 (3) and $3,000 is contributed before 30 June. As well as the tax benefit available to the high-income earner spouse, the strategy can also help to build up superannuation savings for the low-income earner spouse.
Another way to increase spouse’s super is implementing the contribution splitting strategy. The strategy allows eligible spouses (married or de facto) to split up to 85% of concessional contributions (including mandatory employer contributions) made in the prior financial year. The split must occur before the end of the following year, i.e. 30 June 2021 is the deadline for splitting concessional contributions made in the 2019/20 income year.
First Home Super Saver Scheme
Individuals saving for their first home may benefit from making voluntary contributions to super before 30 June. The FHSS Scheme allows first home buyers to make voluntary contributions of up to $15,000 to superannuation per financial year while saving towards the deposit in a tax-effective environment. After contributing for a couple of years, they can withdraw these contributions (up to $30,000 per individual being increased to $50,000 from 1 July 2022) and use the proceeds towards the acquisition of their first home.
SMSF Contribution Reserving
This strategy allows SMSF members to make personal deductible contributions over the annual cap in June and claim larger tax deduction for the current year.
SMSF meeting the minimum pension requirement
SMSF Trustees with members in the retirement income phase must ensure the minimum pension requirement is met before the 30th of June. Otherwise, the income stream will be taken to have ceased for income tax purposes at the start of the year and the SMSF will lose the eligibility to claim the tax-free earnings for that year.
This strategy allows people who are aged over 65 (reducing to 60 from 1 July 2022) who are selling a residence they have lived in for ten years to contribute $300,000 each to superannuation within 90 days of settlement without the normal restrictions on contributions. There is no age limit.
Prepay income protection premiums
Individuals holding income protection insurance outside of superannuation can prepay premiums for the next 12 months to bring forward the tax deduction to the current financial year. This may be beneficial where individual has larger than expected taxable income for the current year.
Prepay interest on an investment loan
Similar to prepaying income protection premiums, prepaying deductible interest on an investment loan before 30 June 2021 will bring forward the tax deduction to the current financial year.
Social security recipients wishing to gift an amount or an asset within the allowable disposal amount can do so before 30th June. These individuals can gift up to $10,000 before the 30th of June and another $10,000 after 1 July 2021, a total of up to $20,000 over June and July. Individuals in receipt of government benefits can gift up to $10,000 in a single financial year or up to $30,000 over 5 rolling financial years. However, the amount gifted in any given financial year cannot exceed $10,000 or the deprivation rules will be applied.
We encourage you to contact the office to discuss if any of these strategies might suit your personal circumstances, goals and objectives.
IMPORTANT: Certain eligibility requirements may apply to strategies listed. To avoid penalties, we strongly recommend seeking advice from your financial planner before implementing any of the strategies explained in this article. The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we do not accept responsibility for any action that you take without confirming with us that it is suitable for your personal circumstances.
(1) Up to 30% if you earn $250,000 or more.
(2) Assessable income for this purpose includes assessable income plus reportable fringe benefits plus reportable employer contributions less business deductions.
(3) Income for this purpose includes assessable income plus reportable fringe benefits plus reportable employer contributions.
By GEOFF TREWARN Authorised Representative of InterPrac Financial Planning Pty Ltd (AFSL Number 246638)