With the end of financial year (EOFY) near we are pleased to share our EOFY 2022 Checklist.
Top Up Super Contributions
Putting more money into superannuation is a great way to get a win-win of boosting your super AND lowering your tax bill. Additional contributions are an excellent way to build your wealth by moving more of your assets into the tax effective environment of super. Annual contribution limits apply so it’s essential that you work out how much you have already contributed. Check with a Financial Planner at Forrest Private Wealth for details on contribution limits. We highly recommend making any additional super payment by the third week of June at the latest, to ensure it clears in time before the new tax year.
Haven’t got surplus cash flow this year? You can carry forward any unused contribution cap amounts for up to five financial years. Rules apply so check with the Forrest Private Wealth team on how to take advantage.
Contributions Splitting
Contributions splitting makes it possible to split your concessional contributions to your spouse’s super. The benefits of adopting the contributions splitting strategy are summarised below.
- Can help equalise super balances between spouses. This may help keep each member couple’s super benefits under $1.6 million each in the long run and accordingly maximise amounts ultimately transferred to the tax-free retirement pension phase.
- Can help to pay for life and total & permanent disablement (TPD) insurance premiums for a low income or non-working spouse through their super.
- Can improve your Centrelink position by splitting contributions to a younger spouse.
- Can allow you to access superannuation benefits earlier by splitting contributions to an older spouse.
Spouse Contributions
Is your spouse not working or earning a lower income under $37,000? If yes, consider making an after-tax contribution (maximum $3,000) into their super account. Everybody wins with this one, your spouse’s super account gets a nice boost and you may qualify for a tax offset of up to $540. That’s an 18% return on your money! If the receiving spouse’s income is over $37,000 but under $40,000, the contributing spouse could qualify for a partial tax offset.
Co-Contributions Incentive
If you earn less than $41,112 annually, the Government has a package of assistance whereby eligible individuals can benefit from a maximum of $500 via co-contributions. Certain requirements need to be met, including:
Your personal non-concessional superannuation contribution must be made to your superannuation fund by 30 June 2022;
You lodge an income tax return for the year;
- Your assessable income (including reportable fringe benefits and reportable employer superannuation contributions) must be less than $56,112 per annum;
- 10% or more of your total income for the year must be from employment and/or carrying on a business;
- You are under 71 years of age and are a permanent resident of Australia; and
- Your total superannuation balance must be less than $1.6m and you must not have exceeded your Non-Concessional Contribution Cap in the relevant financial year to qualify for this incentive.
The table below illustrates the co-contribution amount would be in the 2021/2022 financial year based on a person’s income level and their personal super contribution:
Salary Sacrifice Your Bonus
If you are tempted to blow your bonus on a holiday or car upgrade, consider this. Salary sacrificing your bonus enables you to put pre-tax money into your super, therefore reducing your taxable income and the amount of tax you pay in that year. The benefits of salary sacrificing are subject to your marginal tax rate. Remember that every $1 saved in tax is a $1 earned!
Reminder – New Super Measures
1. The downsizer contributions measure allows an individual from 1 July 2022 to be over age 60 (currently 65) to use the proceeds in relation to the sale of only one of their main residences to make ‘downsizer contributions’ of up to $300,000 (or $600,000 for a couple) into super. The Government has proposed a further reduction from 1 July 2022 to age 55 however this is not yet legislated.
2. A reminder that you can carry forward the unused amount of your concessional contributions cap for up to five years. The first year in which you can access the unused concessional contributions is the 2018/19 financial year and your total super balance must be under $500,000 at 30 June of the previous financial year.
Maximise Deductions & Get Your Receipts In Order
No one enjoys spending their precious time collating expense receipts (…even Financial Planners!) however it’s important to get your admin in order to maximise your tax deductions. Deductible expenses vary from industry to industry so make sure you have researched (or discussed with an accountant) what is and isn’t deductible for your tax return. Some small deductions may seem insignificant, however, every deduction adds up. So take the time with this one to ensure you don’t miss any opportunities.
Make The Most Of EOFY Sales For Big Ticket Items
Need to purchase any tax deductible items like a work laptop? The EOFY is a good time to snag yourself a bargain as many retailers offer big discounts at the end of financial year sales in an effort to clear out old stock and balance the books for tax time. Sales are no excuse to blow the bank, however, before you buy anything ask yourself ‘do I NEED this or do I want this?’.
Capital Gains (and Losses)
EOFY is a good time to review all investments and consider crystallising any unrealised capital gains and or losses to improve your overall tax position for an income year.
Income Protection Insurance
Income protection insurance replaces the income lost through your inability to work due to sickness or injury. If you already have a policy or are considering taking one out, you may wish to consider paying it upfront in a lump sum rather than in monthly instalments. This means you will get the tax benefit in the current tax year.
Pre-pay Interest on Investments
Similarly, consider if you have any other investments where you can pre-pay loan interest. A good example of this is if you own an investment property generating rental income.
Other Considerations
Deferring Retirement until the New Financial Year
If you have any unused leave and anticipate retiring soon you may prefer to delay your termination date until July! Delaying your termination and payment of unused leave until the new financial year may reduce your personal tax liability. A lump sum payment of unused leave in the new financial year can take advantage of lower marginal tax rates, including the tax-free threshold.
In addition, if you are eligible to contribute to super, you may be able to further reduce any tax liability in the new financial year by making a deductible contribution into super.
Gifting for Pensioners
If you want to financially help your family, the end of the financial year is when the annual $10,000 gifting threshold is reset. This gives the opportunity for gifting $20,000 in a short space of time ($10,000 in June and $10,000 in July). As with super contribution caps, the gifting rules are ‘use it or lose it’ so acting now may be beneficial.
Private Health Insurance
We get this question all the time, so let’s go over it.
If you are currently paying the Medicare levy surcharge you should consider taking out private health insurance before 30 June 2022 to avoid paying the surcharge again in the next financial year. Further, the level of the rebate on your private health insurance is tiered, and as your income increases the level of rebate decreases. If you have held your policy for several years without review, you could be claiming too high a level of the rebate, resulting in an amount payable at tax time. The Medicare levy surcharge and the private health insurance rebate from 1 April 2022 to 31 March 2023 are shown in the tables below. *
^ Family threshold increases by $1,500 for every child after the first child.
* https://www.privatehealthcareaustralia.org.au/consumers/private-health-insurance-rebate/
Deductions for Expenses Related to Working from Home
The ATO has released guidance on deductions for expenses incurred directly relating to earning income when working from home which is not reimbursed by your employer. You must keep proof of your working from home hours and these expenses. There are three ways a person can choose to calculate additional running expenses:
Shortcut method
A deduction of $0.80 for each hour worked from home due to the Coronavirus is allowed if the person incurs additional deductible running expenses as a result of working from home.
Fixed-rate method
A rate of $0.52 per hour for the cost of:
- utilities, cleaning, and depreciation of office furniture
- work-related phone and internet expenses, computer consumables, stationary
- work-related depreciation of a computer, laptop, or similar device.
Actual cost method
Claim the actual work-related portion of all running expenses, calculated on a reasonable basis.
For more details, please refer to the ATO website.
The shortcut deduction method will make it easier for many who are working from home for the first time due to COVID-19 to accurately complete their tax return. These arrangements have been put in place for expenses incurred between 1 July 2021 to 30 June 2022.
There are of course many other initiatives which you can take advantage of. Talk to a Financial Planner at Forrest Private Wealth, or your accountant, to learn more on this topic.