What you need to consider…. NOW
It’s like Christmas without the gifts, just the work. However, good planning pays dividends. Here are some things you should be considering now so you’re well prepared.
- Concessional contributions. You can make concessional, or pre-tax contributions to superannuation to the new limit of $25,000 per annum, introduced 1 July 2017.
If you have made less than this but have the capacity to go up to the cap, it is worth considering. If your employer can’t facilitate this for you, all is not lost, you can make the contribution yourself and claim a tax deduction in your tax return – seek advice before doing this and be sure not to go over the limit.
- Non-concessional contributions. If you are eligible, you can also make non-concessional (after tax) contributions of up to $100,000 per annum. This is worth considering if you don’t need access to the funds until you meet a ‘condition of release’ – for many, this is some time after turning 60 years of age.
Note- if your superannuation/pension member balance is greater than $1.6M you are no longer eligible to make non-concessional contributions. Furthermore, with the cap changes and the $1.6M restrictions, your available ‘bring forward’ balance may be impacted. If you are eligible and considering contributing more than $100,000 as a non-concessional contribution we suggest you speak to us to ensure you do not exceed the caps.
- Co-contribution. If you are eligible, you can receive from the government a maximum $500 contribution to your super fund if you contribute at least $1,000 as a non-concessional contribution. To be eligible for this benefit you need to be earning less than $51,813 to qualify for a part payment as well as earning at least 10% of your income from work related activities.
- Spouse contributions. If your spouse is on a low income (less than $40,000pa) or taking time off work, you may be able to make a contribution of up to $3,000 and access the 18% tax offset. The maximum is available where your spouse is earning up to $37,000pa.
- Split your super with your spouse. Contribution splitting allows you to transfer a certain percentage (max 85%) of your concessional contribution made this year to your spouse. Your spouse must be under 55 (if retired) or between 55 and 65 (if not retired) and the split must be completed before 30 June. Contribution splitting may be worth considering if you want to:
- Potentially gain access to your super sooner (if your spouse is older)
- Reduce your total balance if you are nearing the $1.6 million cap
- Boost your spouse’s retirement savings
- In-specie transfers. Another way to contribute to superannuation is via an in-specie transfer of investments held outside of superannuation. They are still capped at the allowable limits noted above.
Note- many of the administration platforms or custodians have cut off dates to ensure that the paperwork and transfers are completed in time for 30 June. Please speak with us and check the cut of dates to ensure you don’t miss out on the opportunity if it’s available to you.
Self-Managed Super Funds –
- Minimum pension payments. To avoid penalties issued by the ATO, check the minimum payments which must be made and be sure they are made prior to 30 June.
Where the pension drawn is in excess of the minimum, and your overall member balance exceeds $1.6M, consider if the excess should treated as a pension or a lump sum withdrawal from an accumulation account.
- Deadline for CGT Relief. SMSF trustees electing to apply transitional CGT relief to their 2016/17 returns or amend a previously lodged return will need to do so before 30 June 2018. Transitional CGT relief was introduced after the 1 July 2017 to allow SMSF trustees who adjusted their asset allocations to comply with the transfer balance cap and transition to retirement income stream reforms.
Investment loans – prepaying interest. Depending on your circumstances, it may be a worthwhile exercise to pre-pay 12 months of interest on your investment loan. You may be able to negotiate a lower rate with your provider by paying them the interest sooner. You will need to consider all aspects of the cashflow involved, including the impact of any differential in tax rates that may apply for you in this and in the next tax year.
Investments – if in this current financial year you expect to fall into a lower tax bracket than future years, you might consider realising capital gains for those assets eligible for the 50% CGT discount.
Furthermore, if you have realised capital gains through the year and you have a few poor performers in your portfolio, you might consider selling them and realising the capital loss to reduce your overall capital gain liability. Please speak with us or your tax adviser before implementing any transactions.
Philanthropy – if you intend to support any worthy charities, don’t forget! Consider the tax benefit and make the most of your timing options.
Income Protection insurance premiums – typically, if you pay premiums annually the insurer will discount the premiums. The premiums are also a tax deductible expense so you might consider switching your premium to make your premiums cheaper and bring the tax deduction forward.
Trust distributions – if you have a discretionary or family trust, make sure that you make the required distributions. Retained earnings may be taxed in the hands of the trustee at the highest marginal tax rate.
Small Business Asset Write Off– if your business has a turnover of less than $10 million, don’t forget you have access to the $20,000 asset write off on income producing assets. The policy was introduced in the 2015 Federal budget, encouraging small businesses to depreciate the full value of income-producing assets instead of claiming the deductions over a number of years.
You may have other considerations pertinent to your personal situation.
Remember- the BPay limits for your provider and note the transfer times! BPay payments may take 2-3 days depending on providers. So plan early.
Lastly, now is also a good time to plan for the forthcoming financial year.
We do recommend that you seek professional advice before undertaking any strategy.
Sovereign Wealth Partners is here to help. Should you have any doubt or queries please do not hesitate to contact us on (02) 8216 1777 or firstname.lastname@example.org