The end of the financial year is only one week away. This week, there are a few things you can do that may help you keep more money in your pocket and less in the tax man’s – but you’ll need to act fast.
With superannuation in particular, there are many things you can do to minimise tax and maximise the nest egg.
You may face twenty or more years in retirement – and the majority of Australians will not have enough to be self-funded if they rely solely on the super contributions set aside by their employer.
Worse still, self-employed Australians often neglect to pay themselves super and could be on track to spending many years on the aged pension.
Think you can get by on the $421.40 a week that a single pensioner currently gets? If not, best to do all you can now to start saving for retirement – and lower your taxable income to boot.
1. Self-employed? Make tax-deductible personal contributions to super this week
Self-employed people (and those who are largely self-employed) may be able to claim a tax deduction on personal contributions.
You can contribute up to $25,000 (if you are under 60) and $35,000 (if you are 60 or over) in the 2013/14 financial year and it may be 100 per cent tax deductible.
These tax-deductible contributions to your super could also help to lower any Capital Gains Tax (CGT) liability you may incur during the financial year (e.g. from the sale of assets).
Make sure that you tell your fund that you intend to claim the contribution as a tax deduction and they will send you the necessary paperwork – and be careful that you don’t exceed the caps for super contributions.
Lastly, be aware that if you earn money as an employee in addition to your own business income, then you’ll need to meet a 10 per cent income rule test to claim a deduction on personal contributions.
This rule states that less than 10 per cent of your assessable income (including salary sacrificed amounts and reportable fringe benefits) must be derived from your work as an employee. If you go slightly over, you may be in for a shock at tax time if you try to claim personal contributions as a tax deduction.
2. Employed and can afford it? Top up with concessional contributions
If you’re employed and can afford it, consider topping up your super.
You must keep in mind the caps for super contributions which include employer contributions (that is, the compulsory super contributions your employer makes to your super fund) as well as any additional contributions you make voluntarily.
Concessional contributions above these limits for a financial year will be automatically included in your income for that year and taxed at your marginal tax rate, less a 15 per cent tax offset. In addition, an excess concessional contributions interest charge will be payable.
The amount of excess concessional contributions will also be added to your non-concessional contribution limit.
However, you will have the ability to request for up to 85 per cent of your excess concessional contributions for the financial year to be released from the super fund to avoid inadvertently exceeding the non-concessional contribution cap.
Sometimes people unintentionally go over the cap when they simply forget to include the voluntary super contributions made on their behalf from any bonuses their employer may have given them.
The other scenario is where people forget to factor in when an employer has paid super administration on fees or insurance premiums into their super fund.
3. Part-timer or low income? Claim a co-contribution from the Government
If you earned less than $48,516 (either as an employee or a self-employed worker) this financial year, consider making an after tax contribution to super before 30 June and you may be eligible for a Government co-contribution of up to $500.
4. Got a low-earning spouse? Contribute to their super and claim a tax offset
Perhaps you are the breadwinner and your husband is at home with the kids. If your spouse or partner isn’t working, or earns less than $13,800 for 2013/14, you may be able to claim an 18 per cent tax offset in this year’s tax return on the first $3,000 you contribute to their super account this year. This simple idea can really help to create a better tomorrow for you and your partner when one of you stops working.
5. Get an early start for next year
It may be too late to benefit you this financial year, but this week you could commit to setting up arrangements for salary sacrificing which may help you reduce tax next year.
Salary sacrificing is offered by many employers and it allows you to contribute pre-tax dollars directly into your superannuation.
Concessional (pre-tax) contributions (including compulsory Super Guarantee Contributions which your employer pays to superannuation) will be capped at $30,000 – or $35,000 if you are aged 49 or over on 30 June – for the 2014-15 financial year. Once again, be careful not to exceed the caps for super contributions.
The end of the financial year provides the perfect time to speak with your financial adviser if you have one or to find a good one if you don’t.
Professional advisers assess your circumstances, goals and timeframe – and how you feel about risk – and provide specific advice to your situation, setting you up for an even more prosperous year to come.
*Claire Esmond is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.
Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.