Tag Archives: Financial Planning

Your super checklist for EOFY

By Robert Wright /June 03,2022/

The lead up to 30 June can be a good time to maximise tax benefits that may be available to you inside super.

Certain contributions, which we cover below, may have the ability to reduce your taxable income, or see you pay less on investment earnings.

Contributions that could create tax benefits:

• Tax-deductible super contributions

You may be able to claim a tax deduction on after-tax super contributions you’ve made, or make, before 30 June this year.

To claim a tax deduction on these contributions, you’ll need to tell your super fund by filling out a ‘notice of intent’ form. You’ll generally need to lodge this notice and have the lodgement acknowledged by your fund, before you file a tax return for the year you made the contributions.

Putting money into super and claiming it as a tax deduction may be of particular benefit if you receive some extra income that you’d otherwise pay tax on at your personal income tax rate (as this is often higher).

Similarly, if you’ve sold an asset that you have to pay capital gains tax on, you may decide to contribute some or all of that money into super, so you can claim it as a tax deduction. This could reduce or at least offset the capital gains tax that’s owing.

• Government co-contributions

If you’re a low to middle-income earner and have made (or decide to make before 1 July 2022) an after-tax contribution to your super account, which you don’t claim a tax deduction for, you might be eligible for a government co contribution of up to $500.

If your total income is equal to or less than $41,112 in the 2021/22 financial year and you make after-tax contributions of $1,000 to your super fund, you’ll receive the maximum co-contribution of $500.

If your total income is between $41,112 and $56,112 in the 2021/22 financial year, your maximum entitlement will reduce progressively as your income rises.

If your income is equal to or greater than the higher income threshold $56,112 in the 2021/22 financial year, you won’t receive any co-contribution.

Also, you’ll generally need to have at least 10% of your assessable income coming from employment/business sources to qualify.

• Spouse contributions

If you’re earning more than your partner and would like to top up their retirement savings, or vice versa, you may want to think about making spouse contributions.

If eligible, you can generally make a contribution to your spouse’s super and claim an 18% tax offset on up to $3,000 through your tax return.

To be eligible for the maximum tax offset, which works out to be $540, you need to contribute a minimum of $3,000 and your partner’s annual income needs to be $37,000 or less.

If their income exceeds $37,000, you’re still eligible for a partial offset. However, once their income reaches $40,000, you’ll no longer be eligible for the offset, but can still make contributions on their behalf.

• Salary sacrifice contributions

Salary sacrifice is where you choose to have some of your before-tax income paid into your super by your employer on top of what they might pay you under the superannuation guarantee.

Salary sacrifice contributions (like tax-deductible contributions) are a type of concessional contribution and these are usually taxed at 15% (or 30% if your total income exceeds $250,000), which for most, means you’ll generally pay less tax on your super contributions than you do on your income.

If you’re in a financial position to set up a salary sacrifice arrangement, you may want to do this before the start of the new financial year, so talk to your employer or payroll division to have the arrangement documented.

Important things to consider

Contributions need to be received by your super fund on time (ie, before 30 June) if you’re planning on claiming a tax deduction or obtaining other government concessions on certain contributions when you do your tax return.

There are limits on how much you can contribute. If you exceed super contribution caps, additional tax and penalties may apply. Read more about super contribution types, limits and benefits.

Currently, if you’re aged 67 to 75 and wanting to make voluntary contributions, a work test applies unless you meet an exemption. Changes to the work test are coming more on this below.

The government sets general rules around when you can access your super, which typically won’t be until you reach your preservation age and meet a condition of release, such as retirement.

Source: AMP

Say goodbye to tax troubles

By Robert Wright /June 03,2022/

Do you find yourself drowning in random receipts when EOFY comes around? Learn to lodge your tax return the easy way with these last-minute and longer-term tax hacks.

Tax paperwork is something few of us take in our stride. In fact, the majority of people hand over much of this responsibility to someone more qualified. But even your accountant can’t do it all for you. Gathering together receipts and records you need to pass along can become a headache when you leave it all to the last minute.

1. Maximise deductions

Depending on your situation – married or single, salaried employee or sole trader for example – there are all sorts of legitimate expenses you can claim against your income to lighten your tax burden. A good accountant can certainly advise on which types of deductions you could potentially include in your return. But whether you’re lodging through an agent or doing your tax return DIY-style, knowing what expenses to record can help you keep receipts organised throughout the financial year.

A visit to the ATO website (www.ato.gov.au) can keep you in the know about eligible deductions in the current financial year. There are also a host of other apps available for keeping track of your spending, and not just the tax-deductible kind. Expensify has been popular for a few years now. Not only does it scan and store receipts, it pulls information including date, time, amount and merchant, into a CSV file ready for your accountant at tax time. There’s also a more concierge-style solution called Squirrel Street available here in Australia. For a monthly subscription you can mail your receipts to be scanned, uploaded and categorised on your behalf.  

If you’re eligible to claim some of your car expenses as a deduction, there’s also a nifty app to make this easier too. Providing you’re following the logbook method for calculating vehicle usage, Vehicle Logbook is an ATO compliant app that gives you an easy way to capture and collate all that essential journey info.

2. Be super savvy

Depending on your working arrangements, you may have already contributed to your superannuation in this financial year, either through the Super Guarantee or voluntary personal contributions. By making extra contributions into super, you’re saving more for retirement and may be eligible for tax concessions too. This will depend on your marginal tax rate and how much you’ve already paid into super.

3. Know your offsets

Making extra super contributions, for yourself and on behalf of your spouse, could also see you qualify for tax offsets. Under current Federal Government legislation, tax offsets are available to lower income earners, and for contributions made on behalf of your spouse if they’re on a low income.

 4. Investment costs

Just like money you earn from working, income from investments is liable for tax. Whether that’s rent from a property or dividends from shares, there may be deductions you can claim against these investment earnings. While an accountant can certainly offer guidance on these deductions, a Financial Planner can advise you on the overall costs and benefits of your investments. Tax is just one of the costs you need to keep in mind when exploring investment options and coming up with an investment strategy to meet your financial goals.

5. Tidy-up for next time

By knowing what deductions and offsets you can legitimately claim, and keeping on top of record-keeping, you could be boosting your chances of getting a tax windfall after lodging your return. But if your overall finances are in a bit of muddle, there may be just as much value in doing a spot of financial housekeeping and decluttering your finances to get all your money matters in the best of shape for the future.

Source: FPA Money and Life

Super changes that could affect you from 1 July 2022

By Robert Wright /June 03,2022/

The government has announced a number of changes to the super system could create opportunities for Australians of all ages. Here’s a rundown of what you need to know.

• More people will be eligible for contributions from their employer, under the Superannuation Guarantee (SG), as the minimum income threshold of $450 per month will be removed.
• Work test requirements for those aged 67 to 75 will be softened and only apply to people who want to claim a tax deduction on voluntary super contributions they may be making.
• More people will be able to make up to three years’ worth of non-concessional super contributions in the same financial year, with the cut-off age increasing from 67 to 75.
• More people will be eligible to make tax-free downsizer contributions to their super from the proceeds of the sale of their home, with the eligibility age reducing from 65 to 60.
• First home buyers, who meet certain criteria, will be able to withdraw an additional $20,000 in voluntary contributions from their super, to put toward a deposit on their first home.

How you could benefit from the changes

Compulsory (SG) contributions from your employer

Under the government’s Superannuation Guarantee (or SG for short), you currently need to earn at least $450 per month to be eligible for compulsory super contributions from your employer. However, from 1 July 2022 that minimum income threshold will be removed. 

This means that even where an eligible employee earns less than $450 in a calendar month, there is now an obligation on the employer to make contributions.

The work test 

Currently, people aged 67 to 74 can only make voluntary contributions to their super if they’ve worked at least 40 hours over 30 consecutive days in the financial year, unless they meet an exemption.

From 1 July 2022, the work test will no longer apply to contributions you make under a salary sacrifice arrangement with your employer, or personal contributions that you don’t claim a tax deduction for.

The work test however will still need to be met if you wish to claim a tax deduction on personal contributions.

Under the new rules, the work test can be met in any period in the financial year of the contribution. This is different to the current rules, where the work test must be met prior to contributing.

Non-concessional super contributions

Currently, those under the age of 67 at the start of the financial year can make up to three years of non-concessional super contributions under bring-forward rules. 

From 1 July 2022, the cut-off age will increase to 75.

The bring-forward rules allow you to make up to three years of non-concessional contributions in a single year if you’re eligible. This means you could put in up to three times the annual cap of $110,000, meaning you could top up your super by $330,000 within the same financial year.

How much you can make as a non-concessional contribution will depend on your total super balance as at 30 June of the previous financial year.

Downsizer contributions

The age Australians can make tax-free contributions to their super from the proceeds of the sale of their home, which needs to be their main residence, will be reduced from 65 to 60. (Note, there is no upper age limit for downsizer contributions and no requirement to meet the work test.)

The maximum downsizer contribution amount of $300,000 per eligible person and other eligibility requirements remain unchanged.

For couples, both spouses can make the most of the downsizer contribution opportunity, which means up to $600,000 per couple can be contributed toward super.

The First Home Super Save Scheme (FHSSS)

The First Home Super Saver Scheme (FHSSS) aims to provide a tax-effective way for eligible first home buyers to save for part of a deposit on a home.

Under the scheme, you can withdraw voluntary contributions (plus associated earnings/less tax) from your super fund, with the current maximum withdrawal broadly $30,000 for each eligible individual.

From 1 July 2022, this withdrawal cap will increase to broadly $50,000 for each eligible individual.

Source: AMP

7 age pension traps to avoid

By Robert Wright /June 03,2022/

After a lifetime of hard work, it’s important you maximise your entitlements in retirement. So you need to structure your finances carefully to make sure you don’t lose your age pension. After all, you’ve earned it. Here are some common traps to be aware of.

Helping loved ones out

It’s only natural to want to help younger family members get a leg up financially. But if you’re nearing or already in retirement, you need to be careful how you go about this, as you could inadvertently affect your age pension entitlements.

If you’re thinking of giving money, the rules are you can gift $10,000 per financial year, and no more than $30,000 over a five-year period.

Any excess amount is counted as an asset, and deemed to earn income, for a full five-year period from the date of the gift.

Buying property

With house prices so high and home ownership getting out of reach for younger Australians, it’s no surprise that many parents want to help their kids get a foot on the property ladder. But with property you need to be extra careful in how you set things up.

Let’s look at an example. A couple aged 55 want to help their daughter buy her first home. Without taking advice they buy a 50% share of a house worth $500,000 so she can obtain a loan.

Fast forward 12 years and the house is now worth $1,000,000, of which their half share is $500,000. Their other financial assets are worth $700,000 so they believed they would be eligible for a part age pension. To their dismay they discover their equity in their daughter’s home has taken them over the assets test cut-off point, meaning they won’t be getting any age pension from the Government.

So what can they do? If they transfer their ownership share to their daughter the capital gains would be as high as $125,000 after the 50 per cent tax discount, on which capital gains tax could be as much as $50,000. And they would have to wait five years to qualify for the pension because Centrelink would treat the $500,000 as a deprived asset. The total value of the capital gains tax and the lost pension could be as much as $150,000!

If they’d been aware of the trap, or taken advice, they could have gone guarantor for their daughter, possibly putting up their own home as part security, and this would have had no effect on their future pension eligibility. Alternately, they could have transferred their ownership to their daughter at least 5 years before they became eligible for the age pension. They still would have had a capital gains tax liability, but at least the 5-year period for counting the gift would have elapsed by the time they applied for the age pension.

Borrowing against the family home to invest

If you’re already, or about to be, on the age pension, purchasing an investment property with the loan secured against your family home (primary residence) can be a trap.

Normally, the debt against an investment asset—for example, an investment property—is deducted from the asset value when working out whether you’re eligible for an age pension. But if the mortgage is secured against another asset like the family home, then the gross amount is counted. So this may affect your age pension as the full value of the investment is counted as an asset.

A way to avoid this could be to secure the asset against the investment instead.

Downsizing the family home

If you’re thinking of selling your family home and buying a smaller place, there’s an added incentive as the Government is allowing downsizer contributions into super for eligible Australians of up to $300,000.

But there could be a Centrelink sting in the tail, as you’re converting an exempt asset (the family home) into a counted asset (money left over) that could affect your eligibility for the age pension.

Let’s look at an example. Ray (70) and Gina (67) receive close to the full age pension, based on their assets and income.

They want to downsize their family home, which they could sell for $2.5 million. They’d prefer to buy an apartment closer to their kids for around $1.5 million.

If they go ahead, they’d have surplus assets of up to $1 million, which will either considerably reduce their age pension, or cut it off altogether.

By consulting their financial adviser, Ray and Gina could decide either to proceed as planned, or perhaps buy a more expensive replacement property and have less surplus capital, with less of an impact on their age pension.

And their adviser could help to invest the surplus capital to generate an income—for example, by making downsizer contributions into super and starting an account-based pension.

There’s plenty to think about if you’re looking at downsizing, so you might want to get some advice.

Leaving a bequest in your will

Many retired couples leave all their assets to each other in their wills if they pass away.

While this is perfectly understandable, it could cause grief to the surviving partner if their age pension is reduced or lost altogether. The asset cut-off points for singles and couples are quite different—$595,750 for a single person and $901,500 for a couple.

Let’s look at an example. Jack and Jenny have assessable assets of $740,000 and are getting around $11,800 a year in age pension payments. Jack dies suddenly and leaves all his assets to Jenny, taking her over the assets test limit for a single person and she loses the pension entirely.

Unfortunately, Jenny can’t get around this by passing the assets on to their children. If you’re a named as a beneficiary in someone’s will, and you gift it away to, say, your children, it’s still counted as part of your assets and subject to the income test for the next five years.

If Jack and Jenny had consulted a financial adviser, one solution could have been to leave specific assets to their children and bypass the surviving spouse altogether.

Starting a super income stream early

If you start a super income stream once you reach preservation age and before you reach age pension age—for example, as part of a transition to retirement strategy—it could affect your entitlements to Centrelink allowances like Jobseeker. So it’s important to get financial advice.

Advice can make all the difference in how you set up your super and pension arrangements in general. If you have a younger partner, one option could be moving assets into super as a non-concessional contribution for the spouse who is underage pension age.

The amount placed in super for the younger spouse is preserved until they meet a condition of release. This may work well if their condition of release is only a few years away but could be a concern if there’s more of an age gap.

Changing account-based pensions

If you’ve been receiving an account-based pension (ABP) for a while, you should be aware of a change made on 1 January 2015 which impacted how much income from the ABP is counted towards the age pension income test.

If you were in an existing ABP you were exempt from the new rules—but only for as long as you continued with the same provider.

So if you change providers you could inadvertently reduce your age pension entitlements.

A financial adviser can help work out the best option for your particular circumstances—the benefits of a new ABP or the higher age pension.

Setting up a family trust

If there’s a family trust or private company involved in your affairs, the rules are even more complex, so you’ll need expert advice before applying for the age pension.

Source: AMP