Year End Tips – Personal Financial Strategies

With the 30 June end of the financial year fast approaching it is a good time to check that you are taking advantage of the tax-effective opportunities available before it is too late for this tax year.

Please note these are general strategies that may not be suitable in your personal situation, so please seek our professional advice if you are unsure of their appropriateness for you.

Super opportunities

1. If you’re 55+ on 1 June 2013: convert super to pension mode
For most people, whether working or not, it can be very beneficial to convert your super account to pension mode once you reach age 55, to boost your retirement savings.  Many clients mistakenly think they have to stop work before using this strategy.  Starting a pension account from 1 June means you only need to take the minimum pension by 20 June the following tax year.  This strategy is particularly effective in your SMSF, but can also be used with nearly all super funds.

2. Make full use of the annual $25k contribution cap (‘concessional cap’)
If working and your cash flow can afford it, make sure your employer and salary sacrifice contributions make full use of the $25 000 annual limit.  Cash flow can be freed up by combining this strategy with the pension strategy outlined above.

If less than 10% of your assessable income is from employment you can claim a personal tax deduction to make this contribution; be careful to notify your fund of an intention to claim the deduction and then make sure you receive an acknowledgement from your fund.

3. Make full use of the annual $150k contribution cap(‘non-concessional cap’)
If you are running behind in building up your retirement savings for the financial independence stage of your life and you have other investments, it can also make sense to contribute up to $150,000 without claiming a tax deduction.

Beware going over either of these limits in a tax year, as tax penalties can apply, but you can bring forward the next two year’s limits if you haven’t previously used the ‘bring-forward’ rule and you are under 65 on 1 July 2013. 

4. Use the $3 000 spouse contribution, where spouse income below $13,800
Anyone with a spouse (including de facto) with assessable income below $13,800 this tax year can receive a tax offset by making a contribution of up to $3 000 to their spouse’s super account.

5. If earning below $31,920 target the government co-contribution
By making an after tax contribution to super of up to $1,000, those earning below $46,920 this tax year can receive up to $500 as an extra contribution into their super account from government. For example, if you contribute $800 the government pays another $400 into your fund – a 50% return on your contribution.
Also, those earning below $37,000 should be eligible for the government's low income super contribution to offset the 15% contribution tax on employer or salary sacrifice contributions.

6. Use the last chance to transfer shares into your SMSF
If you have been thinking of transferring your shares into your SMSF without selling on the stock market and paying in the cash proceeds you have up to 30 June 2013 to do this.  From 1 July 2013 you will have to sell your shares on the market to get your shares into the low-tax super environment.

For more information about these superannuation strategies, please see our End of Financial Year super tax planning flyer.

Other opportunities

1. Pre-pay interest on investment loans
If you have borrowed money to invest, whether for shares or property, you can claim a tax deduction this tax year by prepaying next year’s interest.

2. Make a difference to others tax-effectively
You can receive a tax deduction on donations from $2 made to a valid charity (called a ‘deductible gift recipient’). 

If you have aspirations to leave a legacy to benefit others and you have more than $500,000 to use, you can instead set up your own charitable fund, which works along similar lines to an SMSF but called a “PAF”, and claim a tax deduction for the contribution.  This is particularly useful for those with a taxable windfall who have enough assets to meet their other long-term needs.  You can control the investments but have to give away at least 5% of the fund every year.

3. Take advantage of tax-deductible expenses and keep receipts
For any expenses you pay this tax year, whether charitable donations or costs like buying a new briefcase or PDA for work purposes, make sure you keep your receipt and bring it to your annual tax return meeting with us.

If you want more help in understanding how these general strategies might suit you, or if you want help dealing with the financial uncertainty in your life and how to achieve your long-term goals, please free to contact our Partner – Wealth Consulting, Michael Rees-Evans CFP® on 02 9299 7044.

Alternately, please visit our Where do I start page and completing the online questionnaires.

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