Crystal Wealth Newsroom
How long-term thinking gets the best results come EOFY
It’s that time again. With the end of the financial year looming, Crystal Wealth director Tim Wedd walks us through some key considerations to ensure you have your ducks in a row, come tax time.
While most people only think of their tax affairs come June each year, the best strategy for a successful tax plan is, in fact, a long-term, multi-year approach. That said, there are several things you still have time to assess before 30 June to ensure you get the most out of the current year – as well as setup correctly for FY19/20, too.
At Crystal Wealth, we work with our clients year-round to help ensure they’re approaching the tax year strategically. This ensures plans can be adjusted in time to extract the benefits.
Here are some of the things we typically talk about with our clients, and some of the scenarios we need to consider as a result.
Understanding your tax profile
It’s vital you have a clear understanding of your tax profile and impact on your investment portfolios to optimally manage your income and outgoings. This includes having an eye on potential tax liabilities and analysing what financial activities might be best realised in the current financial year, or put off to the following year.
For example, there may be certain actions you bring forward into 2018/19, such as selling assets that trigger a capital loss (allowing you to use that loss to offset any capital gains realised earlier this financial year), or pre-paying expenses to deduct from your 2018/19 assessable income (such as pre-paying 12 months of interest on an investment loan, annual subscriptions, etc).
Another key consideration is your future employment status.
If you happen to be retiring at the end of June, you are likely to have a far lower taxable income next financial year. In this scenario, you might consider delaying final employment payments where possible to the new year in order to reduce the tax payable. Additionally, if you are looking at selling assets that would trigger capital gains tax, it could be time to consider your long-term tax profile and defer that sale until the next financial year.
Strategic super contributions
If you are sitting on surplus cash flow or savings, the end of financial year (EOFY) may be a good time to top up your super by making extra concessional contributions within the relevant cap ($25,000 in 2018/19), claiming a personal tax deduction in the process.
You may also want to make extra non-concessional contributions (contributions that are made into your super fund from after-tax income) up to the relevant after-tax cap. This means also considering spouse contributions, low income super tax offsets or the ‘splitting of concessional contributions’ from the previous financial year.
It’s vital to have a clear understanding of the relevant top-up contribution caps, tax offsets and contribution conditions, along with a view of your previous years’ contributions, to ensure you don’t inadvertently breach your limits and generate unwanted tax penalties. If in doubt, always check in with your adviser before making any top-up super payments.
Most importantly, your contributions need to have been received by your fund by 30 June to be recorded against the limits for the 2018/19 financial year.
An eye on pension payments
Managing your pension correctly is another important EOFY activity as to receive the full tax benefits there must always be at least a minimum level of pension paid out for the year (calculated based on your age at 1 July each year).
Some people will reach that minimum requirement with ease if they are taking regular payments. However, if you don’t draw a pension regularly (because you have other sources of income), you need to be aware of what your minimum annual pension payment is to ensure you comply with the standards each year.
This is also true for anyone who may have become eligible for the pension in the current 2018/19 financial year—a pro-rata minimum payment will still be required to be paid out by 30 June 2019.
Assessing your assets
If you are a small business owner, now is also the time to be looking carefully at any required asset purchases. This was one area of the Federal Budget that was changed this year by the Coalition Government. The rules vary but broadly the deduction allows small businesses with a turnover of less than $10 million to claim a full upfront tax deduction of up to $30,000 when purchasing an eligible asset from 2/4/19-30/6/20 (e.g. a work vehicle, trailer, computer). In some cases, this may also apply for businesses with turnover up to $50 million.
As with your super contributions, it’s imperative these purchases are finalised before 30 June to be utilised in your 2018/19 return and you need to check carefully the eligibility criteria before any purchase to ensure you can access the instant asset write-off provisions. The amendments this year mean the ‘write-off’ threshold could be varied this year depending on the date of purchase and when the asset is first ready for use in the business.
If you are seeking expert financial advice for the 2018/19 financial year and beyond, please don’t hesitate to talk with us. Every individual’s tax profile is different, but working closely with a financial adviser is the best way to maximise your long-term financial opportunities, while minimising your ongoing tax exposure.
The above information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances.