With global restrictions easing, markets correcting and businesses starting to adjust to the COVID-19 safe new normal; now is an important time to consider End of Financial Year Strategies for your 2019/20 return.
Want to help boost your retirement savings while potentially saving on tax? Here are some smart super strategies to consider before the end of the financial year.
If you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction. This means you’ll reduce your taxable income for this financial year – and potentially pay less tax. And at the same time, you’ll be boosting your super balance.
How it works
The contribution is generally taxed at up to 15% in the fund (or up to 30% if you earn $250,000 or more). Depending on your circumstances, this is potentially a lower rate than your marginal tax rate, which could be up to 47% (including the Medicare Levy) – which could save you up to 32%.
Once you’ve made the contribution to your super, you need to send a valid ‘Notice of Intent’ to your super fund, and receive an acknowledgement from them, before you complete your tax return, start a pension, or withdraw or rollover the money.
Keep in mind that personal deductible contributions count towards the concessional contribution cap, which is $25,000 for this 2019/20 financial year. Although you may be able to contribute more than that without penalty, if you didn’t use the whole $25,000 cap in 2018/19 and are eligible to make ‘catch-up’ contributions.
Concessional contributions also include all employer contributions, including Superannuation Guarantee and salary sacrifice.
This is the first year that you can take advantage of the catch up concessional contribution rule.
From 1 July 2018, if you have a total super balance of less than $500,000 on the previous 30 June and you make or receive concessional contributions (CCs) of less than the concessional contributions cap of $25,000 pa, you may be able to accrue unused amounts for use in subsequent financial years.
How it works
In the 18/19 year Bob’s employer contributed $7,500 to super as SG contributions, leaving him with a remaining concessional cap limit of $17,500. This 19/20 year, Bob’s Employer has again contributed $7,500 as SG contributions, leaving an unused cap of $17,500. As Bob’s total super balance at 30/06/19 was less than $500,000, Bob can contribute a total of $35,000 as a concessional contribution to super before 30 June 2020 and it is all tax deductible. This is an extremely useful strategy if you are trying to boost your super, or have had additional taxable income this year (sale of a property or other asset).
| |
2018/19 |
2019/20 |
|
| Concessional Cap |
$25,000 |
$25,000 |
| Employer Contributions |
-$7,500 |
-$7,500 |
| Unused Cap |
$17,500 |
$17,500 |
Unused 2019/2020 |
|
$17,500 |
Carry forward from 2018/19 |
| $35,000 |
Available before 30/06/20 |
Care should be taken to ensure that you qualify for the catch up before you make the contribution.
Another way to add to your super is with some of your after-tax income or savings, by making a personal non-concessional contribution.
Although these contributions don’t reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15% that’s paid in super on investment earnings. This tax rate may be lower than what you’d pay if you held the money in other investments outside super.
How it works
Before you consider this strategy, make sure you’ll stay under the non-concessional contribution cap, which in 2019/20 is $100,000 – or up to $300,000 if you meet certain conditions. That’s because after-tax contributions count as non-concessional contributions – and penalties apply if you exceed the cap.
Also, to use this strategy in 2019/20, your total super balance must have been under $1.6 million on 30 June 2019.
Remember, once you’ve put any money into your super fund, you won’t be able to access it until you reach preservation age or meet other ‘conditions of release’.
If you earn less than $53,564 in the 2019/20 financial year, and at least 10% is from your job or a business, you may want to consider making an after-tax super contribution. If you do, the Government may make a ‘co-contribution’ of up to $500 into your super account.
How it works
The maximum co-contribution is available if you contribute $1,000 and earn $38,564 pa or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $38,564 and $53,564 pa.
Be aware that earnings include assessable income, reportable fringe benefits and reportable employer super contributions. Other conditions also apply.
If your spouse is not working or earns a low income, you may want to consider making an after-tax contribution into their super account. This strategy could potentially benefit you both: your spouse’s super account gets a boost and you may qualify for a tax offset of up to $540.
How it works
You may be able to get the full offset if you contribute $3,000 and your spouse earns $37,000 or less pa (including their assessable income, reportable fringe benefits and reportable employer super contributions).
A lower tax offset may be available if you contribute less than $3,000, or your spouse earns between $37,000 and $40,000 pa.
Need assistance?
You’ll need to meet certain eligibility conditions before benefiting from any of these strategies. If you’re thinking about contributing to super before 30 June, talk to us. We can help you decide which strategies are appropriate for you.
Other important issues to consider before year end
Please ensure that you have met the minimum pension payment for the year prior to 30/06/2020. Where the minimum pension has not been paid, the pension may be treated as having ceased at 1 July 2019 and will be taxed as an accumulation account, for the entire year.
Consider how much pension you wish to draw for the 2020/2021 year. The government has announced reduced minimum pension rates for the remainder of this year and the 2020/2021 financial year as follows:
| Age |
Default minimum drawdown rates (%) |
Reduced rates for the 2019/20 and 2020/21 income years (%) |
| Under 65 |
4 |
2 |
| 65-74 |
5 |
2.5 |
| 75-79 |
6 |
3 |
| 80-84 |
7 |
3.5 |
| 85-89 |
9 |
4.5 |
| 90-94 |
11 |
5.5 |
| 95 or more |
14 |
7 |
If you don’t require the income, reducing your pension to the minimum will allow your super to recover in the current market conditions. Different paperwork will be required depending on whether your pension is via retail or industry super or your Self-Managed Super Fund.
Financial institutions have offered people the ability to pause their loan repayments due to COVID-19. Many people have not made loan repayments in March – June of this year, and are now wondering if the interest will still be tax deductible.
Where interest is still being charged by banks on investment loans, even though the bank does not request payment, the interest will be deductible in the year the interest has been changed.
If interest has not been charged to your loan and is not showing on your Bank Statement, you should query this with the Bank in the first instance and then let us know.
Income protection premiums are tax deductible to you. If you have been paying premiums monthly, and have available cash, you may wish to make an annual premium payment now (in effect pre-paying the next 12 month’s premium). You would need to contact us (or your insurer) and have an Annual Premium Invoice emailed to you and pay it before the 30th June in order for it to be tax deductible in this year.
We're here to help.
As always we are only a phone call away. If you would like to discuss any of these matters in relation to your personal financial planning, please do not hesitate to contact Ulton's Wealth Management team on (07) 4154 0400.
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