2018 End of Financial Year Newsletter

When reviewing and preparing your income tax position for the 2017/2018 financial year, we suggest you take into consideration the following three points:

1. Claim all deductible items

There are numerous expenses you can declare on your tax return that will reduce the amount of tax you pay. The most common tax deductions are work related expenses and charitable donations. Work related expenses are purchases made in the process of earning your assessable income. You can claim up to $500 of work related expenses without needing a receipt (unless a single expense exceeds $300), however, we advise that you keep proof of all purchases where possible.

2. Offset capital losses against your capital gains

You can also deduct any of your capital losses against your capital gains to reduce the amount of tax payable. For most people, a capital gain will occur when they sell shares or property. If at sale, these assets are worth less than when they were purchased then you can reduce any other capital gains for that financial year by offsetting the amount of the loss.

3. Review your investments

End of financial year is a good time to review how your investments are going and evaluate if they are performing to expectations, especially if you have recorded a capital loss in the current financial year. In some cases, it may be appropriate to sell off an under-performing asset and realise a capital loss to potentially reduce the amount of capital gains tax you pay om any other realised capital gains. You can then use the money from that sale to invest in a new asset that is likely to grow in the future.

Personal income tax rates

The personal income tax rates which apply from 1 July 2018 are as follows:

¹ Excluding Medicare Levy of 2%.
² May change to $90,000 should legislation be introduced to Parliament and pass into law.

In this section we look at a range of things you can do before 30 June 2018 to get the most benefit from superannuation and maximise your retirement wealth.

Salary Sacrifice into super and you could save tax

Salary sacrifice is an arrangement between you and your employer where you elect to contribute part of your gross salary into super. Salary sacrifice forms part of your concessional contributions (which also include your employer’s 9.50% compulsory SG contributions, any further contributions made by your employer and any contributions made by your employer to a superannuation insurance policy). All these things are subject to the concessional contributions cap which places a limit on the amount which can be contributed to super.

Extra super contributions via salary sacrifice can have tax advantages (up to certain limits). Although any salary sacrifice contributions are “preserved” (i.e. remain within super), the contribution tax rate (15%) compares very favourably to most people’s marginal tax rate. Talk to Harvest if you believe salary sacrifice would benefit you.

Example

Paul is 45 and receives an annual salary of $75,000pa. He decides to salary sacrifice $833 per month (i.e. $10,000pa) into his super.

By re-arranging his package, Paul has effectively given himself a nearly 3.4% pay rise!

However, take care when making salary sacrifice contributions, there are limits!

Take advantage of the Government Co-contribution scheme and you could add up to $500 to your super

The government co-contribution is a scheme that rewards low income earners for making extra contributions into their superannuation fund. Currently the co-contribution is:

• $500 if you earn less than $36,021
• $1-$500 on a sliding scale if you earn between $36,021 and $51,021.

Help boost your spouse’s super and you could get a tax rebate of up $540

The spouse contribution rebate allows one person in a relationship to contribute money into their spouse’s superannuation account while earning a tax rebate for themselves. This is particularly relevant for families (de facto and married) where there are two working adults - one full time and the other who earns less than $13,800 per annum. You will receive a tax rebate of 18% for any money you contribute (up to $3,000) into your spouse’s account. The maximum rebate available is $540. To be eligible, a spouse contribution must be made from your after-tax income and must be made before 30 June 2018. Note that the maximum income threshold for the receiving spouse will increase from $13,800 per annum to $40,000 per annum from 1 July 2018..

Contribution Splitting

“Splitting” your concessional super contributions (i.e. your 9.50% SG and any Salary Sacrifice contributions) with your spouse may minimise tax and produce other benefits. Under the current rules, you can transfer up to 85% of your concessional contributions to your spouse’s super fund (provided your spouse is under 65 and not retired). If your spouse is older than you, this may allow them to access this money earlier as they will reach their preservation age before you. To split your contributions for this financial year, the appropriate form must be submitted to your super fund.

Get your kids started on the road to super

Anyone earning up to $36,813 can put money into their super and the government will add up to $500 to that. There’s no age minimum for your kids. They just need a tax file number and have earned income from a job (not exceeding $51,813). Make an after-tax contribution (of up to $1,000) into your working child’s super account and they could get an extra $500 from the government (contribution amounts change based on your child’s income).

Consider making after-tax personal contributions

You may wish to consider making contributions to your super account from your after-tax income. These contributions are known as non-concessional contributions and can be an effective way to reduce tax, particularly on the investment earnings of that money if contributed to super. Investment earnings in super are taxed at a maximum of 15% as opposed to your marginal tax rate in a non-super investment.

Review your investment strategy

The end of the financial year offers a good opportunity to review your investments to determine whether you are content with the performance of the assets you hold and to ensure that your investments continue to match your personal risk profile. Perhaps you hold assets (particularly in a Self-Managed Super Fund) which are underperforming and it makes sense to sell, or perhaps you have carry-forward capital losses which you can use to minimise your net capital gains and thus reduce your capital gains tax liability.

If you are making changes to your assets, be weary of ‘wash-sale’ rules. A ‘wash-sale’ involves the sale and immediate repurchase of the same investment in order to either realise a capital loss or reset the cost base of that investment. This is considered tax avoidance by the ATO and is harshly penalised.

The end of the Financial Year often presents a good opportunity to review your estate planning arrangements.

Now is the time to start thinking about planning your day to day finances for the next financial year. One of the best ways to do this is to create a budget. Here are our top tips for creating an effective budget:

1. Identify and list down what you want to achieve.
2. List them in order of importance (most important to least important).
3. Break your goals down into short term (1-2 years), medium term (3-5 years) and long term (over 5 years).
4. Determine what action you need to take and any resources you need in order to implement your action items and ensure you write them down.
5. Evaluate your progress on a regular basis and take corrective action if/where needed.

• Consider the appropriateness of a self-managed super fund. Talk to Harvest for advice,
• Would you benefit from holding some assets in your spouse’s name? Talk to Harvest. We can give you advice in this area,
• Effectively timing when you receive income or realise a capital gain (or loss), prepaying investment expenses and/or your insurance premiums or deductible expenses, can be very tax effective strategies you could use,
• Borrowing (i.e. “gearing”) to invest can be a very tax effective way to build wealth over the longer term,
• Is your mortgage competitive? Make sure you are not giving your bank more of your money than you need to. Get your mortgage reviewed to ensure it is structured correctly and that the interest rate is competitive.
• Are your assets and income adequately protected with insurance?