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Your three priorities before the end of the 2019 financial year

 

7 June 2019

 

 

 

 

 

 

You’ve got a few weeks before the tax year is over. Jason Murphy shares some tips to make the most of them.

Every year, as the financial year draws to its close, the importance of financial decisions is heightened. The specific choices you make will always depend on your own situation and strategy, but as the financial year ends there are some big topics to pay attention to.

Associate Professor Adrian Raftery, head of financial planning at Deakin Business School, says superannuation is often the most important matter at tax time, because of its favourable tax treatment.

Priority 1: sort your super

Australians can contribute up to $25,000 to superannuation per year under a concessional (before tax) rate of 15 per cent.

(There is an additional 15 per cent tax on such contributions for individuals whose combined income and contributions are greater than $250,000. But even that is likely to be more favourable than their marginal tax rate.)

“Superannuation is probably the biggest concession that is available out there so I would take advantage of the $25,000 limit for the concessional contribution,” says Raftery.

Non-concessional (after tax) contributions can also be a good idea, as earnings on assets in super are taxed at a low rate. Be careful that contributions don’t push you over $1.6 million in total super balance or you will be assessed for excess non-concessional contributions tax. You can contribute up to $100,000 after-tax to your super.

Taxpayers under 65 years of age with a super balance less than $1.4 million also have access to a ‘bring-forward’ rule under which they can round up three-years worth of non-concessional contributions in one year. Again, be careful of not exceeding $1.6 million in total super balance.

Raftery says the three-year bring-forward rule can be quite valuable: “You might want to put in $100,000 on June 30 and another $300,000 on the first of July. Get $400,000 in in the space of 24 hours if you wanted. But with all these things definitely talk to an advisor.”

Another metric to keep an eye on is the $1.6 million limit on superannuation balances that can be transferred to the retirement phase. In the lead up to that point keeping balances below $1.6 million can have advantages to avoid the significant extra tax.

Anyone selling their home this financial year would also want to be aware of the superannuation downsizer contribution – proceeds from the sale of your main residence can be contributed to your superannuation fund up to a maximum of $300,000 per person (so $600,000 for a couple), regardless of age, and you won’t be penalised for exceeding the $1.6 million total super balance. Just be aware of the rules involved and talk to a financial advisor.

Priority 2: bring forward expenses

Beyond superannuation, taxpayers may choose to reduce this year’s tax bill by maximising certain deductible expenses in this financial year and deferring income into the next.

Deferring income could be of benefit if you expect to earn less next year and therefore pay less tax.

One example of this is postponing selling shares or an investment property where you could incur a large capital gain.

Bringing forward expenses into this financial year means you see its impact on your tax bill sooner. This could be deductible work, investment or charity-related expense such as insurance, technology or donations.

ANZ senior private wealth advisor Jacki Tulloch nominates income-protection insurance as an example of such an expense.

“Any tax deductions, like income protection, if you are thinking about taking that out, if you do it this side of June 30 (and it’s getting a bit close) but you get to claim your income protection,” she says.

For investment property holders, expenses might include pre-paying mortgages where possible.

If you’re making donations to registered charities, making them just prior to June 30 will also minimise the impact on cash flow.

Setting up a charitable trust can also offset a significant liquidity event.

“A number of clients have sold their business and they have a significant capital gain so it is a really good time to review whether they want to set up a charitable trust,” Tulloch says. “Again that would have to be set up in the year you made the gain.”

Priority 3: plan ahead

Amid the maelstrom of the end of financial year it is also important to keep an eye on your own long-term strategy. The end of financial year is not the only time to make decisions and indeed decisions forged slowly, rather than under pressure, may be those that suit your own strategy best.

So start thinking about and planning for the 2020 financial year now, it’s the perfect time to evaluate your own longer term financial objectives to see what needs reviewing and double-check you’re on track. There’s some key areas to think through:

  • Review your current finances to get an overall perspective on your financial health
    • Investment performance (including superannuation)
    • expenses
    • debts, and how you will manage them.
  • Set clear, achievable goals for the short, medium and long term.
  • Review your 2019-20 insurance needs (many Australians are underinsured).
  • Review your yearly budget and make sure it’s working for you.
  • Seek advice early. Tax matters are complex in Australia and can change year on year.

The federal election result, with no change in government means that substantial change is less likely. Government policy, however, is never a sure thing. It depends on a number of contingencies, including who controls the upper and lower houses of Parliament; and what form eventual legislation takes. As Tulloch says, change is not certain, but the need to make decisions is.

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