Steve Thaxter- Partner and Principal Adviser
Sovereign Wealth Partners
2020 is turning out to be the year we couldn’t plan for, and suddenly we find that we’re only 7 weeks away from the end of the financial year.
This article provides a short discussion of items to consider from a wealth planning perspective, many of which require action well before 30 June. “New” or highly relevant aspects are shown in italics. Speak to us for specific advice and the various cut-off deadlines.
You may contribute to superannuation in various ways, including cash contributions or investment in-specie transfers. Whilst the investment markets are weak there may be additional tax benefits of contributing to super through in-specie transfers.
For FY20, the contribution caps are:
1. Concessional contributions (CC) (including employer super guarantee contributions) $25,000 per person, plus, for some, unused concessional contribution amounts since 1 July 2018.
2. Non-concessional contributions (NCC) $100,000 per person, if your total superannuation balance is less than $1.6M as at 30 June 2019. Or, up to $300,000 if you are eligible for the “bring forward” rule.
Downsizer super contributions of up to $300,000 each may be available for those over 65 who sold a home they have owned for 10 years or more after 1 July 2018.
You may have heard there are rule changes afoot to allow those aged 65 and 66 to continue to contribute to super without meeting the work test of 40 hours in 30 consecutive days. These rules are not yet finalised and won’t apply for this tax year.
Government Co-contributions and Spouse contributions.
There are some useful extra tax concessions when contributing to a low earner’s super balance.
If you earn at least 10% of your income from employment, the Government may give you up to $500 as a government co-contribution if you make a non-concessional contribution. You need to be less than 71-years-old, earn less than $38,564 and make a $1,000 contribution to receive the full $500.
Low income earners also get a break on the 15% tax applied to concessional contributions. The Government will apply a low income super tax offset of up to $500 to your super account if you earn less than $37,000, so it might be worthwhile contributing extra and claiming a tax deduction.
If your spouse isn’t earning much, you might want to give their super a boost. If your spouse earns below $37,000, you can claim a spouse contributions tax offset of up to $540 when you contribute $3,000 or more to their super.
Please note- these descriptions of the super rules and contributions caps are highly simplified, other rules apply, including – age, existing balance, previous contributions, employment etc. We highly recommend speaking to us about your eligibility. One wrong move and penalties and charges may apply.
Taking money out of super and pensions
For those in pension phase with an account based pension, make sure you have taken at least your minimum pension by 30 June and considered your ongoing cashflow requirements. As part of its COVID-19 response the Government has halved the minimum payment amounts for the current and next tax year.
If you have money in superannuation and are unemployed or have been otherwise economically and financially impacted by COVID-19, you may be eligible to access up to $10,000 of your superannuation this financial year and next, without penalty. HOWEVER, due to fraudulent activity as at 8 May 2020 the Government has temporarily suspended the measure as investigations take place until Monday 18 May 2020.
Capital Gains and Losses
For all too many, this tax year will be one that has produced very little in overall investment returns. But if you’ve realised a net investment gain this year and haven’t sold any assets at a loss, you may still end up paying tax on those gains. You might want to consider bringing forward the disposal of an asset carrying a capital loss to offset other capital gains. This might be achieved by simply transferring the investment to another entity like your superannuation account.
Timing of expense recognition and income
The disruptions of 2020 may have changed your likely marginal tax rate for this year or next. As such you should carefully consider the timing of significant deductible expenditure and ongoing income arrangements.
If you think you might earn less next year, or simply to have a bigger refund, you could bring forward tax deductible expenses and defer assessable income if it’s legally valid to do so. For example, you can pre-pay up to 12 months of expenses such as interest on an investment loan. This applies to deductible work-related expenses like insurance premiums for income protection policies too. And as part of its COVID-19 response, the Government is allowing up to $150,000 in instant asset write-offs for small businesses until 30 June 2020. After this date, the threshold is scheduled to revert to $1,000.
The COVID-19 restrictions have had many of us work from home. If you are working from home, you may be able to claim a deduction for expenses relating to that work. These are generally home office running expenses, phone and internet expenses. The ATO has provided a temporary simplified method for calculating work related expenses between 1 March and 30 June 2020. These may be extended as work patterns return to normal.
You can claim a deduction of 80 cents for each hour you work from home due to COVID-19 as long as you are working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls and incurring additional deductible running expenses as a result of working from home. This should be discussed with your tax professional.
Again, please note- that the descriptions above have been simplified, for more detail and advice contact your Sovereign Wealth Partners adviser.