Kreston Dormers Financial Services Pty Ltd - End of Financial Year Strategies

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End of Financial Year Strategies

With the end of financial year approaching, it is an ideal time to consider your end of financial year planning, in conjunction with building assets within a tax effective environment – Superannuation.

Personal Concessional Contributions for the Self Employed
The 2009/10 limit for tax deductible contributions for those aged 50 and over is $50,000 p.a. and for those under age 50 the limit is $25,000 p.a. These limits include the 9% GSL contributions.

Tax deductible contributions can be made by an employee through salary sacrificing or for those substantially self employed, contributions can be made regularly or by lump sum contributions before 30 June 2010. To be deemed substantially self employed, less than 10% of your assessable income must be derived from salary and wages.

Salary Sacrifice
Employees who may receive an end of financial year bonus should consider salary sacrificing this to superannuation to build assets in a tax effective environment and lower taxable income, subject to the contribution limits above.

Note: An agreement to salary sacrifice these amounts must be in place with your employer before you become entitled to them.

Government Co-contributions
Those who are substantially self employed and individuals who are employees, with an assessable income less than $61,919*, can benefit from the government co-contribution scheme. By making an additional contribution to super with after tax money (up to $1,000), the Government will also contribute up to $1,000 to the superfund.

The maximum co-contribution of $1,000 applies where income and reportable fringe benefits are $31,920 or less. A reduction of 3.33 cents per $1 applies for income above $31,920 with the co-contribution expiring when income reaches $61,919.

Spouse Contributions
A tax offset of 18% or $540 is available on spouse contributions up to $3,000. The maximum offset or $540 is available when spouse’s total income (assessable income + reportable fringe benefits + reportable employer contributions) is $10,800 or less. The rebate cuts out at $13,800.

Moving assets held in personal name into Superannuation
ASX listed securities and business real property can be contributed to, or purchased by, a superfund. You may consider transferring CGT neutral shares or those in a loss situation to superannuation without CGT (capital gains tax) consequences. A limit of $150,000 per person per year applies to non-concessional (undeducted) contributions to super. Individuals under age 65 can bring forward two years’ worth of contributions for a $450,000 limit to apply over 3 years.

Non concessional contributions are not subject to contributions tax, while earnings within super whilst in accumulation will be taxed at a maximum rate of 15% rather than your personal marginal tax rates. Once converted to paying a pension superfund portfolios become tax exempt.

PLEASE NOTE: do not contribute to superannuation without first speaking with your adviser. There are serious tax consequences for exceeding your contribution limits.

Defer asset sales to manage CGT
By delaying selling profitable assets until after June 30, you will defer any related Capital Gains Tax liability into the next financial year. This strategy is particularly effective for anyone expecting to earn a lower taxable income in the following financial year (e.g. due to retirement or parental leave).

Pre-pay income protection premiums (non super policies) Pre-paying the premiums for the next 12 months on a policy before June 30 can bring forward a tax-deductible expense, and therefore decreasing taxable income in this current financial year.

Pre-pay investment loan interest
In the case of geared investment, pre-paying up to 12 months interest before 30 June brings forward an expense that would otherwise be tax deductible in the following financial year. This will reduce income tax payable in the current financial year. Structured products are available in the market to facilitate this strategy.

Transition to Retirement Pension for 55 plus year olds
Whether you are working or not, converting your super to paying a pension renders your superfund earnings tax exempt. Any surplus pension can be re-contributed to your fund.