The end of financial year is always a busy period for individuals and businesses as they scramble to get their affairs in order before the June 30 deadline. Here are some tips to maximise your tax savings and add some value to your circumstances and some traps to avoid in the weeks leading up to the end of financial year.
TIP: Maximise Superannuation Contributions
From 1 July 2017, the Australian Government will reduce how much can be contributed to superannuation in an attempt to increase tax revenue and fix the national budget. The concessional contribution cap will be reduced to $25,000 and the non-concessional contribution cap will be reduced from $180,000 to $100,000 for all individuals.
There are significant tax advantages in making contributions to superannuation, not only just in the immediate short term, but also over the longer term. However tax savings are not the only benefit available when contributing to superannuation. You may also be eligible for either of the following:
TIP: Government Co-Contribution
If you are a low or middle income earner for the 2017 financial year, you may be eligible (or part eligible) for a $500 government co-contribution. The amount you receive depends on how much you earned and how much you contribute.
TIP: Spouse Contribution
You may be eligible for a $540 tax offset if you make a contribution to superannuation on behalf of your spouse this financial year if they earn a low income or are not working.
NOTE: Prior to making any superannuation contributions it is imperative that you consult your Adviser to ensure the very best outcome.
TIP: $20,000 Asset Write Off
Small businesses can immediately obtain a tax deduction for assets they start to use – or have installed ready for use – provided the depreciable asset costs less than $20,000. Therefore if you are considering buying assets for your business you may wish to do so prior to 30 June to obtain an immediate tax benefit.
TRAP: Changes to Transition to Retirement Income Stream
From 1 July 2017, Transition to Retirement Income Streams are being taxed internally at a rate up to 15% applicable to investment growth and earnings. Up until this point all investment growth and earnings were entirely tax free. This has changed the landscape for Transition to Retirement Income Streams considerably so if you are operating one of these accounts it is best to have your circumstances reviewed, as in many cases it may not be beneficial to be operating one after 1 July 2017.
TRAP: New $1.6 Million Transfer Balance Cap
From 1 July 2017 there will be a limit imposed on all Transition to Retirement Income Streams and Account Based Pensions with balances over $1,600,000. The limit is designed to force the commutation (transfer) of any funds in excess of $1,600,000, back into the accumulation environment, or associated superannuation account where it will be taxed at a higher rate. Should action not be taken prior to 30 June, and the balance remains above the $1,600,000 Transfer Balance Cap, taxation consequences and penalties may be enforced.
TRAP: Defined Benefit Pensions
Similar to Transition to Retirement Income Streams and Account Based Pensions, Defined Benefit Pensions are also included in the $1,600,000 Transfer Balance Cap. The way the balance of your Defined Benefit is calculated is simply 16 times the gross annual income stream. Therefore this balance will also need to be included when assessing your total account values contributing to the Transfer Balance Cap.
Due to the complexity of the changes occurring from 1 July 2017, it is imperative that you seek advice before making any changes.
Feel free to contact a Stonehouse Adviser to discuss further.