Noel Whittaker Writes Exclusive Weekly Blog Updates For The Ban Tacs Group, With IN8 Business Advisory, A Member Of That Group. Here, He Talks about ways on how to save tax.
May is here which means it’s time to think about ways to save tax. This has been the most unusual financial year, and your income may be way down. If that’s the case, it may be valuable to postpone personal concessional deductible contributions to superannuation, or repairs and maintenance on investment properties, until a year when your earnings put you in a higher tax bracket, when the deduction would give you a higher refund.
If you have some shares with a capital gain, and some with a capital loss, take advice about whether to sell both before 30 June to offset the gain against the loss. Also, if there is likely to be some CGT payable, if you are in a lower tax bracket this year, the CGT may be charged at a lesser rate.
Making superannuation contributions up to your maximum cap of $25,000 a year is a no-brainer. Once you have reached that cap, consider utilising any unused cap from the last couple of years then consider making a contribution for your spouse. If they earn less than $37,000 this financial year you may even get a tax offset as a bonus. Get advice on your particular circumstances, as this tax offset is unlikely to be a better option than making a deductible contribution for yourself. To qualify for the spouse contribution tax offset of $540 all you need to do is make a $3,000 non-concessional contribution, on their behalf. Your spouse may also like to consider making a non-deductible super contribution for themselves of $1,000, if they are eligible for a $500 government co-contribution.
Voluntary super contributions such as salary sacrificed contributions or personal contributions other than downsizer contributions (which must come from the sale proceeds of a house you have lived in) can only be accepted on or before 28 days after the end of the month in which the contributor turns 75 , subject to meeting the work test or work test exemption if above age 67. Since the start of the current financial year, a person aged 65 or 66 is no longer required to meet the work test to make a voluntary super contribution. However, once they are 67 or over at the time of making a voluntary super contribution, they still need to meet the work test or work test exemption to be able to make a voluntary contribution (except for a downsizer contribution).
The work test requires you to be gainfully employed for at least 40 hours in 30 consecutive days in the financial year. Where required, the work test must be satisfied before the voluntary contribution is made.
A re-contribution strategy is worthwhile if you have access to your superannuation, and are still eligible to make contributions. You could possibly withdraw up to $300,000 tax-free, and re-contribute it as a non-concessional contribution, on which there would be no entry tax. By doing this you would convert a large chunk of the taxable component of your fund to non-taxable, and so alleviate substantial taxes for your inheritors if you died suddenly, and your superannuation went to a non-dependent.
The key message in regard to contributions is to make sure they are paid on time. If the payment is received after June 30 it will count for next year. This could have serious impact on your financial affairs.
If you are in pension mode now, keep in mind that the minimum drawdown requirements that were halved due to Covid have been restored to take effect from 1 July 2021.
Therefore, when working out your budget for the next financial year make sure your super pension fund has enough liquid funds available to make the pension payments for you.
9 May 2021
