With the end of the 2019 approaching, we would like to draw your attention to some things worth considering as part of your year-end tax planning.
As always, we are here to assist you. If you have questions about any of the strategies mentioned in this email, or you would like to explore new opportunities for tax planning, superannuation or insurance that might be appropriate for your situation, please don’t hesitate to contact us.
Things to consider:
1. Pre-pay deductible expenses – if you have expenses that are tax deductible, consider paying them before 30 June in order to bring forward your tax deduction to the current financial year.
Also, if you run an eligible small business, the instant asset tax write-off that was available in past financial years has been extended to 30 June 2019.
2. Residential rental properties – travel expenses – for investors that have residential rental properties, the tax deduction for travel expenses to inspect the property was abolished from 1 July 2017.
3. Defer income – where possible consider deferring income until after the end of the financial year, or where your tax rate is likely to be higher in the 2020 financial year, consider bringing income forward to the 2019 financial year.
4. Planning to retire, or stop working? – if so, consider deferring your plans to stop working until early in the next financial year. Any lump sums you receive from your employer such as payments for accrued annual and long service leave, will be taxed in the year they are received. If your tax rate is likely to drop in the 2020 financial year, deferring leaving work may result in a lower rate of tax being payable.
5. Tax deductible superannuation contributions – from 1 July 2017, claiming a tax deduction for personal superannuation contributions got easier. Tax deductions are now available to a much wider group of taxpayers. However, contributions are subject to limits and can generally only be made by people under the age of 65, unless they continue to work. Speak to us about this opportunity.
6. Maintain good records – there is nothing more frustrating than not being able to find receipts and payment records when tax time arrives. Consider using an app or other web-based solution for recording expenses and maintaining your vehicle log book.
7. Net Medical Expenses Offset – this financial year is the last year the offset will be available for costs associated with disability aids, attendant care, and aged care fees.
8. Private health insurance – having your own private health insurance may deliver a number of benefits including:
- Being eligible to receive the private health insurance rebate;
- Avoiding the Medicare levy surcharge; and
- Avoiding the lifetime health cover loading if private insurance is not taken out before turning 30.
Things to consider:
1. Your total superannuation balance as at 30 June 2018. This is the total of all your superannuation accounts and may influence whether you can make non-concessional (after tax) contributions to super, your eligibility to access the ‘three-year bring forward’ opportunity, your eligibility to receive Government co-contributions and a tax offset for any spouse contributions you may make.
2. If planning to make additional superannuation contributions, remember that 30 June falls on a Sunday this year. Consider making them well in advance at the end of the year to ensure they are received by your super fund on time. Contributions made by electronic funds transfer, e.g. BPAY, are not deemed to have been made until the money appears in your super funds bank account. This could be some days after you initiate the transfer.
3. Concessional contributions include contributions made by an employer such as the 9.5% superannuation guarantee, salary sacrifice contributions and personal tax-deductible contributions. The maximum concessional contributions that may be made this financial year is $25,000.
4. The rules around making personal tax-deductible contributions have been relaxed significantly. Most people, not just the self-employed, are able to claim a tax deduction for their personal contributions. But limits apply and steps need to be taken to ensure a tax deduction is valid.
5. Non-concessional contributions are contributions made from after-tax income and from other savings. The maximum amount that can be contributed this year is $100,000, or up to $300,000 using the three year bring forward rule. However, if your total superannuation balance at 30 June 2018 was more than $1.6m, you cannot make any non-concessional contributions. If it was between $1.4m and $1.6m, the maximum that can be contributed under the three-year rule has been scaled back.
If you contributed more than $180,000 in 2016-17, the amount you may be able to contribute this year has been reduced.
6. Do you hold insurance through your super? If so, legislation passed in February 2019 may result in people with inactive superannuation accounts finding that their insurance cover held inside their super fund is being cancelled. This will apply from 1 July 2019.
If your super fund determines your account is inactive, they will write to you and inform you of the pending cancellation of your insurance. If you receive such a letter from your super fund, it is important that you contact us without delay.
Your insurance may be retained by either making a contribution to your super fund, or by making an election to retain your insurance.
7. Planning to buy your first home? Voluntary contributions made to super since 1 July 2017 may be withdrawn for the purpose of buying your first home under the First Home Super Saver Scheme.
8. If your total income is less than $52,698 you derive at least 10% of your income from employment or self-employment, and you make a personal non-concessional contribution to super, you may be eligible to receive a Government co-contribution of up to $500.
9. People who make a contribution to super for their spouse may be eligible to receive a spouse contribution tax offset of up to $540. A spouse contribution tax offset is available where an eligible spouse for whom a contribution is made has income of less than $40,000.
10. With the introduction of limits people may now have in a superannuation pension account, the ability to split contributions between spouses, and therefore move towards equalising super, is more important than ever.
There is still time to split up to 85% of concessional contributions made in the 2017-18 financial year. Concessional contributions made in 2018-19 may be transferred to a spouses account after 30 June 2019.
11. On 1 July 2017 we saw the introduction of the ‘transfer balance cap’. In simple terms, this restricts the maximum amount that may be transferred to a super pension or income stream (these terms are interchangeable). The transfer balance cap is currently $1.6m.
12. There are occasions when concessional or non-concessional contributions to super exceed the permissible limits. If this happens, the Australian Taxation Office will issue an excess contribution determination. If you receive a determination it is essential you contact us immediately, even if you think an error has been made. There are strict timeframes that must be adhered to in order to minimise penalties.
13. Are you running a small business and have sold the business or any of the businesses assets? If so, you may be eligible to take advantage of the small business capital gains tax concessions. Not only do these concessions save you tax, but may enable you to make additional contributions to superannuation without being constrained by the concessional and non-concessional contribution caps.
14. The Australian Taxation Office is holding more than $17.5bn billion of lost and unclaimed superannuation on behalf of Australians. We can assist you in searching for any lost superannuation you may be entitled to.
15. One of the attractions of superannuation is the ability to draw a very tax effective income once you retire. However, to receive favourable tax treatment, a minimum amount of income must be drawn each year. Check to ensure you have drawn the prescribed minimum level of income before the end of the financial year.
16. Superannuation pensions are not solely reserved for those who have retired, but people who are approaching retirement age may also draw a pension from their super under ‘transition to retirement’ rules.
It is important that once a person receiving a transition to retirement pension meets a superannuation ‘condition of release’, such as retiring, even if before the age of 65, they inform their super fund or adviser immediately. Doing so may reinstate some of the taxation advantages that were lost from 1 July 2017.
17. The money a person has in superannuation does not automatically form part of their estate when they pass away. There are a number of options available for a person to nominate a beneficiary to receive their super in the event of death, however, the rules are complex. We encourage all clients to make appropriate death benefit nominations. If a nomination was made in the past, it is important to review it from time-to-time to ensure it remain current and up-to-date.
FOR SELF MANAGED SUPERFUNDS
Things to consider:
1. The transfer balance account reporting obligations are now well entrenched. These obligations require trustees to provide certain information when a member of their fund commences drawing a pension, or commutes all or part of a previously reported pension.
2. The transfer balance cap regime, that came into effect on 1 July 2017, restricts the amount that a member of a super fund can transfer to the pension phase of superannuation. The current maximum is $1.6m.
Once transferred to the pension phase, a pension account may grow in value to more than $1.6m in value with investment earnings without the need for the excess over $1.6m to be withdrawn.
3. The trustees of each SMSF are required to make, regularly review, and invest in accordance with their fund’s investment strategy. Investment strategies should be formally reviewed yearly and more often if the circumstances of the fund change.
4. As part of the investment strategy, trustees are required to consider insurance on the lives of members of the fund. A requirement to regularly review the insurance also applies. Decisions of the trustees should be recorded in writing.
5. Borrowing money for investment purposes has been a popular strategy used by an increasing number of SMSFs. Borrowings must comply with strict requirements imposed by legislation and the Regulator.
Where money has been borrowed other than from a bank, the loan must be structured on commercial terms, as if the loan was provided by a bank. Many SMSFs borrow from a related party or a non-bank lender.
Limited recourse borrowing arrangements should be reviewed to ensure they reflect the current requirements of the Australian Taxation Office. Failure to comply may result in the SMSF being taxed at a rate of 45%.
6. Trustees of SMSFs are required to ensure the assets of their fund are valued at current market value. While this does not necessarily require a formal valuation to be undertaken by an independent registered valuer, the valuations must at least be provided by someone with the necessary skills and experience. This is particularly important for SMSFs investing in property. Assets should be valued at least annually.
7. SMSFs that invest in, or make loans to related entities, are investing in in-house assets. The maximum amount that a fund can have in in-house assets is 5% of the market value of the fund’s total assets.
It is advisable for SMSF trustees to review their investment in in-house assets, based on up-to-date valuations, before the end of the financial year so that corrective action can be taken if necessary.
8. SMSFs that have members in both the accumulation and pension phases of superannuation, have two options when it comes to determining the portion of the funds income that is tax exempt. Trustees may either use the segregated or the proportional (unsegregated) method. Where the proportional method is used, an actuarial certificate is required each year.
From 1 July 2017, trustees of SMSFs may no longer use the segregated method where the fund has both accumulation and pension interests and has at least one member with a total superannuation balance (all their superannuation funds combined) of more than $1.6m.
This is a snapshot of the things you should be thinking about as you approach the end of the 2019 financial year. Remember, it’s important that you discuss these considerations with us or your tax agent or accountant.
If you have questions about any of the issues raised, or if you would like us to review any aspect of your financial position, superannuation, insurance or personal or business tax planning, or simply check that everything is on track, please don’t hesitate to contact us at 08 8231 4709 to arrange a confidential, obligation-free appointment.