As we approach the end of the 2019-20 tax year in Australia here are some steps you might take to reduce your tax bill – or to increase your tax repayment.
Please remember that comments here are general in nature – you should consider discussing what follows with your tax accountant before taking any action.
Make a Tax Deductible Contribution to your Superannuation Fund
If you make a personal super contribution you may be able to claim the contribution as a tax deduction, and reduce your assessable income.
Such a contribution will usually be taxed in the fund at the concessional rate applicable to super funds of up to 15%, instead of your marginal tax rate which could be up to 47%.
This strategy could therefore result in a tax saving of up to 32%, and you will have more invested in your super fund.
Personal tax deductible contributions are included in the “concessional contribution cap”, which amounts to $25,000 for tax year 2019/20, and includes any contributions made by your employer.
Penalties apply if you exceed this cap.
When considering the cap on concessional contributions consider also whether you have any unused concessional contributions from tax year 2018/19, as an amount that was not used in that year can be utilised in 2019/20.
To take advantage of the carry forward contribution rules your Total Super Balance must be under $500,000.
Consider Non Concessional Superannuation Contributions
If you have surplus savings you may benefit from making lump sum non-concessional contributions (NCCs) up to the relevant NCC cap before the end of this financial year.
As these contributions are made into your super fund from after tax income they are not taxed in your super fund, so are not taxed at 15%.
The annual cap on NCCs is currently $100,000, unless you are eligible to make what are called bring forward contributions.
NCCs can only be made if your individual Total Super Balance was less than $1.6 million on the 30th of June, 2019.
There are two main types of NCCs:
- Personal contributions you make as a super fund member and don’t claim as a tax deduction in your income tax return. These are often called “voluntary” contributions.
- Spouse contributions, which are made directly into your spouse’s super account. This can be a tax-effective way to save for retirement if one partner of a couple is only working part-time or has a low income below $40,000 per annum. You may be eligible for a tax offset of up to $540 on super contributions of up to $3,000 that you make on behalf of your spouse. These contributions can also help to balance the amount you and your spouse have in super and can equalise your retirement income.
If you earn at least 10% of your income from employment or from carrying on a business and make a NCC you may be eligible for a Government co-contribution of up to $500.
The maximum co-contribution is available if you contribute $1,000 and earn $38,564 or less.
A lower amount may be received if you contribute less than $1,000 and/or earn between $38,565 and $53,563.
Remember super contribution deadlines
If you want to make additional super contributions this financial year you must do so before 30 June 2020 to ensure they count towards the 2019/20 caps.
Note that individual super funds may also have specific requirements and deadlines that need to be taken into account when making super contributions close to the end of the financial year.
First Home Super Saver Scheme
Linking to the discussion above regarding tax deductible superannuation contributions, if you are an eligible first home buyer you may be able to make voluntary superannuation contributions to use towards a deposit for your first home under the First Home Super Saver Scheme (FHSSS).
You can make a personal super contribution up to a maximum of $15,000 per person per tax year, subject to a maximum of $30,000 in total.
The FHSS scheme allows you to save money for a first home inside your super fund, helping first home buyers save faster with the concessional tax treatment of superannuation.
New Assets – Instant Asset Write Off for Businesses
Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is acquired and is first used, or installed ready for use.
Until the 30th of June 2020 the maximum amount of the instant asset write-off for each asset is $150,000 (up from $30,000), and eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).
If you purchase a car – meaning a passenger vehicle, except a motor cycle or similar vehicle, designed to carry a load less than one tonne and fewer than nine passengers – for your business the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019/20 tax year.
For example, if you use your vehicle for 75% business use, the amount you can claim as an instant asset write-off is 75% of $57,581, or $43,186.
You may want to consider prepaying deductible expenses to bring forward the tax deduction into 2019/20, and to reduce your assessable income. Examples to consider include:
- Prepaying up to 12 months of premiums on an income protection policy held outside super
- Paying tax accounting fees in advance
- Prepaying 12 months interest on a fixed rate investment loan
- If you operate a limited company business: paying final quarter Superannuation Guarantee Contributions before the 30th of June 2020 (the payment deadline for which is the 28th of July 2020)
Capital Gains Tax Planning
If a capital gain has arisen on the disposal of an investment and you retain an asset that is showing a presently unrealised capital loss consider selling the asset to realise the loss for offset against the capital gain.
Or, if you are considering the sale of an asset that will give rise to a capital gain maybe delay the sale until after the end of this tax year. This will defer the payment of tax on the capital gain – and can reduce the tax payable if your taxable income is lower in the tax year in which the disposal takes place.
If you think you might need help with tax planning in Australia please complete the enquiry form on this page. We can then have a no obligation free conversation about your tax position, and how bdh Tax might help.
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