As the end of FY18 is fast approaching, there are a number of strategies that can still be implemented to your benefit.
Make the most of superannuation – concessional contribution
For many people, super remains a highly tax-effective structure through which to hold investments to accumulate retirement savings, and to also maintain their risk/insurance protection. However, current contribution caps and rules mean that planning ahead over the longer term is the best way to maximise the benefits of super.
Particularly worth noting are the following changes:
- This financial year is the first where the concessional contributions (CCs) cap of $25,000 applies to everyone, regardless of their age or the person’s superannuation balance. This cap will only increase over time by indexing in $2,500 increments.
- Importantly, 2017–18 is also the first financial year where the less than 10% employment income rule no longer applies when looking to claim a tax deduction for personal superannuation contributions.
- Beginning in 2018–19, a person can commence to accrue unused amounts of CCs cap and ‘carry-forward’ these unused amounts. The first year a person can make additional CCs from their accrued unused amounts is in 2019–20, provided their prior 30 June Total Superannuation Balance (TSB) was under $500,000
Members who hold an accumulation interest in a super fund are able to split part of their prior year’s CCs (including personal deductible, employer SG, and salary sacrifice contributions) to their spouse, provided the fund offers this facility. Only certain contributions may be split with a spouse, and other qualifying conditions must be met. The amount that can be split is the lesser of 85% of the CCs or the member’s CCs cap.
The main reasons for considering a contribution splitting strategy are to:
- shelter assets against the Centrelink means tests by splitting contributions to a younger spouse (who is under their Age Pension age)
- access tax-free benefits earlier by splitting contributions to an older spouse
- access two low-rate thresholds for any super withdrawals made between preservation age and age 59
- effectively doubling the amount that may be withdrawn as a taxfree lump sum to $400,000 in the 2017–18 financial year (ie $200,000 x 2)
- fund term life and total and permanent disability (TPD) insurance premiums for a low income or non-employed spouse through their super fund, and
- help equalise the super balances of each person – this may assist with keeping each partner’s total superannuation benefits under $1.6 million.
Members can make a valid contribution splitting application in:
- the financial year immediately after the financial year in which the contributions were made, or
- the financial year in which the contributions are made, if the entire benefit is being withdrawn and/or rolled over before the end of the financial year
In 2017–18, a tax offset of up to $540 is available for spouse contributions of $3,000, where the receiving spouse’s assessable income plus RFB and RESC does not exceed $37,000.
The offset reduces once the receiving spouse’s total income exceeds $37,000, cutting out at $40,000.
If the recipient spouse is aged 65 or more (but under age 70), then they must satisfy the work test to be eligible to receive the contribution.
The receiving spouse must be under age 70 at the contribution date for the contributor to be eligible for the tax offset.
Prepay deductible expenses
A tax deduction may be claimed for up to 12 months’ worth of interest prepaid on an investment loan on a rental property, or margin loan on a share portfolio or managed investment, provided the loan has a facility allowing this. In addition, the payment of other deductible expenses, such as professional memberships or pre-paying salary continuance/ income protection insurance by 30 June 2018, reduces taxable income..
This may also be a good strategy if you believe that interest rates are likely to rise in the near future, as prepaying an investment loan fixes the interest rate for the agreed period.
Private health insurance
Individuals and families with income above the Medicare levy surcharge threshold and without adequate private health insurance may be liable for up to 1.5% Medicare levy surcharge for any period without adequate cover. The 2017– 18 thresholds are $90,000 for single people and $180,000 for families with up to one child; the threshold increases by $1,500 for each child after the first child.
Manage capital gains tax
Review investment portfolios and potential capital gains, eg fund distributions and/or asset sales. Where there is a potential CGT liability from selling an asset during the year or as a result of a corporate action, it may be appropriate to sell another asset to crystallise a loss. Realising a loss allows you to offset capital gains and thus minimise or even eliminate a tax liability you may otherwise be facing. At the same time, this strategy allows you to offload a low-quality, under-performing asset that has little likelihood of recovering in the short to medium term and to invest in a better-quality asset.
Start Thinking About FY19
It is never too early to start planning and we recommend that you start planning for FY19 now.
At WARR HUNT, we understand the advice needs of Medical Specialists. Our ongoing research and practical client experience tells us the key challenges are:
- Public versus Private
- Balancing Practice and Life stages
- Managing Cash flow efficiently
- Time poor, with many throats to choke
We can introduce solutions to address these and maximise wealth outside the practice for true financial independence. Our primary goal is to give you time and financial security to enjoy the things that really matter – family, friends and personal passions.
Please contact us on (03) 9935 0790 or firstname.lastname@example.org