When it comes to getting the most (money) from your annual tax return, there is always a lot to think about, so we’ve provided a short checklist of options that could open the door to some great opportunities. If you haven’t already, it’s time to think about booking a tax planning meeting with your financial advisor.
Some key items to consider with your planning:
Tax deductions—lower your liability
- Pay now for some of next year’s expenses
If you have some spare cash available, paying for certain expenses early could mean you also get your tax break back from the ATO earlier. Expenses that are met in July could leave you waiting more than 12 months for the return. A popular expense in this category is interest on an investment loan, but be careful because not all expenses qualify you for a tax deduction in advance.
- Cash back for some of your insurance premiums
Except for income protection, most life insurance premiums are not tax deductible at a personal level. But holding your death or permanent disability cover through a superannuation fund can achieve a similar outcome. This is an important consideration when setting up a new policy. Or in some cases you may be able to replace an existing policy with one inside superannuation, which is particularly helpful when cash flow is tight.
Super contributions—don’t waste the limits
June 30 is not just about deductions for expenses. It’s also a good time to consider the superannuation contribution limits that may be wasted if you don’t act soon. And the temporary higher contribution limits make this an even more important issue.
- Salary sacrifice or tax deductible contributions, especially from age 50
The annual limits for these types of contributions were simplified just a couple of years ago, but now the federal government has reduced them. This means that the $100,000 limit for those over age 50 for the 2008/09 financial year was reduced to $50,000 from 1 July 2009. Within the next few years, these people will only be able to claim $25,000 each year (indexed to inflation) as tax concessional super contributions.
For those under age 50, the limit is $25,000 per annum. If you’re an employee, this limit covers both employer super guarantee contributions and salary sacrifice. Do you need to adjust your arrangement?
- After-tax contributions: careful planning around age 65
The ability for anyone under 65 (whether working or retired) to contribute $150,000 each year to super as non-concessional contributions was left intact by the 2010 federal budget. So was their ability to contribute $450,000 in a single year by bringing forward the limit for the following two years—but care must be taken if you are heading towards 65.
For example, let’s say John is 64, retired, and needs to place $500,000 into super following an inheritance. In his eagerness to maximise his balance, he sends a cheque of $450,000 straight to the fund. What John needs to know is that this action means he cannot contribute again until age 67, and even then, he would need to be back at work to do so. John may be better advised to contribute just $150,000 this year, and then he would be free to place the remaining $350,000 into the fund next year.
When considering ways to boost your super with these types of contributions, it may be worthwhile considering more than just the cash funds you have available. Some types of super funds allow you to transfer direct shares, for example, as a contribution, and the depressed market value may help to lower the Capital Gains Tax implications of doing so. Elsewhere, small business owners who have a Self-Managed Super Fund may find that now is an ideal time to consider transferring their business premises into the fund.
It’s never too early to start.