When it comes to getting the most (money) from your annual tax return, there is usually a lot to think about, so we’ve identified a few options that could open the door to some opportunities to save on tax or grow your retirement savings. The key here is to plan ahead.
If you have some spare cash available, paying for certain expenses before June 30 could mean you get your tax break back from the ATO earlier. Expenses paid in July could leave you waiting more than 12 months for the return. A popular expense in this category is prepaying interest on an investment loan, but be careful because not all expenses qualify for a tax deduction in advance.
You can claim the premiums you have paid for your income protection insurance out of pocket as a personal tax deduction. Note that you can only claim the portion of the premium that covers you for loss of income, not for any benefits of a capital nature. Premiums for other personal insurance cover such as life, critical care or trauma cannot be claimed. You also can’t claim deductions for premiums that are paid from your superannuation contributions if your policy is held in your fund.
June 30 is not just about deductions for expenses. It's also a good time to review your superannuation contributions to date and take advantage of the annual caps. It’s critically important to consider before you make any contributions to super that you meet eligibility requirements for the type of contribution you would like to make. It’s noted a number of legislative changes are proposed on the age limits for contributions to Super so if you are over age 65, we recommend speaking with us prior to making any contributions as the below may not be available to you.
The annual limit for these types of tax-deductible contributions is $25,000 per annum. This is set to increase to $27,500 from 1 July 2021. If you're an employee, this limit covers both employer super guarantee and salary sacrifice contributions.
From 1 July 2018, new legislation was passed to allow individuals to utilise unused concessional contribution caps from the previous rolling five-year period. You need to have a balance under $500,000 at 30 June the prior financial year to utilise the carry forward rule.
For clarity on the carry forward rule, this means individuals with a balance of less than $500,000 at June 30 2020 have the ability to contribute $25,000 this Financial Year plus any unused concessional contribution cap from the 18/19 and 19/20 Financial Years.
Anyone under 65 can contribute $100,000 each year to super as after-tax or non-concessional contributions. This is set to increase to $110,000 from 1 July 2021. You can also contribute $300,000 (increasing to $330,000 from July 1 2021) in a single year by bringing forward the limit for the following two years. But – when it comes to super there’s usually a ‘but’ – check your total super balance to ensure any extra contributions do not exceed the general balance transfer cap of $1.6 million for 2020/21. This is set to increase to $1.7 million from 1 July 2021.
And just on super contributions – the total contributed is based on how much is received by your fund, not when you sent it to the fund. Another reason why planning ahead is crucial.
You could receive up to 50c for every dollar you contribute into your super account, up to a maximum of $500. If your taxable income is less than $39,837 you may be eligible for the full entitlement, however the amount of Government Co-Contribution available to you is reduced when your income exceeds this level and is phased out at the upper limit of $54,837 taxable income.
If an individual has an assessable income of less than $40,000 then their spouse can generally make a contribution to super and claim an 18% tax offset. This is available for contributions up to $3,000 and the benefit is received when you lodge your tax return. The maximum offset is $540 where your spouses’ assessable income is $37,000 or less and is phased out up to $40,000.
These are just a few ways to manage how your money is taxed. Depending on your circumstances, other options may be available. Our team can work with you to help you achieve what is best for you this financial year. But please don’t leave it too late.
The advice in this newsletter is general in nature and does not take into account your own financial objectives, circumstances or needs. You should consider your own personal situation and requirements before making any decisions. If you have any concerns or questions, please contact us.
A copy of our Financial Services Guide can be found on our website: