By Noel Whittaker
June 30 is rapidly approaching, which means there are things you should do in the near future to improve your financial situation.
Smart tax planning means deferring income while bringing forward expenses. For example, if you have money to spare, think about placing it in a term deposit with the interest maturing after June 30. The interest will then be taxed next year.
If you have deductible expenses, such as repairs and maintenance on investment properties, try to bring them forward so you can enjoy your tax deduction in the current financial year.
Investigate prepaying 12 months’ interest on your investment loans. Pre-paying a year’s interest on a loan of $300,000 may cost $15,000, but it could get you up to $7350 back as a tax refund. This strategy requires negotiation with your lender – you can’t just bank the equivalent of a year’s interest into the loan account, because all the lender will do is take one month’s interest and credit the rest to the principal
An especially valuable strategy, which was only introduced last July, is the ability to make tax-deductible concessional contributions to your superannuation account, even if your employer is paying superannuation for you. The cap is $25,000 a year, and this includes the employer contribution. For example, if your employer is paying $9000 into super for you, your maximum contribution will be $16,000. It’s important to get the paperwork right with this one, so take advice before you make the contribution.
Do you want to make a guaranteed 50 per cent on your money between now and June 30? Then talk to your financial adviser about making a non-concessional contribution of $1000 to superannuation. Provided you meet the eligibility guidelines, the government will give you a tax-free bonus of $500, which will see your $1000 become $1500.
The maximum government co-contribution is $1 for every $2 of eligible personal super contributions made in a financial year and it is subject to an income test. It starts to taper at $36,813 a year, until it cuts out at $51,813 a year. For co-contribution purposes you must be under 71 at the end of the financial year.
Just be aware the employer compulsory superannuation does not count for the co-contribution. To be eligible, you must make an additional contribution from after-tax dollars. This is not subject to the 15 per cent entry tax.
Another simple and useful strategy, if one spouse will have low earnings, is to make a spouse contribution of $3000, so you can become eligible for the tax offset – it is the best way I know to get a capital-guaranteed 18 per cent on your money.
The amount of the offset is 18 per cent of the spouse contribution you actually make, up to a maximum of $3000, which gives you an immediate tax offset of $540, reducing your own tax. Spouse income must be under $37,000 to get the full offset, then it gradually reduces, reaching zero when the spouse’s income reaches $40,000.
Just keep in mind that contributions to super must be received by the fund prior to June 30. This year it falls on a Saturday, which means the effect of the last working day is Friday June 29.
Last but not least, there is one thing you should not do – that is sign a contract to sell your house, if you are thinking of taking advantage of the new government downsizing laws. I’ll discuss those in detail in a future article, but bear in mind the contract must be signed after June 30, otherwise you will be ineligible.
Source: The Sydney Morning Herald
