7 end of year tax tips

 Tax year review – before 30 June 2015.

 7 tips to consider before and after the new tax year.

At WRS we are not tax advisers, we leave this to the professionals who specialize in tax.  However we do have a reference of tips that we think are worthwhile considering and discussing with your tax specialist. Here are a few for the lead up to June 30 and also to get you considering your options for the 15/16 tax year.

1. Transition to retirement (TRIS):

A popular TRIS strategy is to salary-sacrifice up to your annual concessional contributions cap ($30,000 / $35,000 if 49 as at 1st July 2014 for financial years 2014/2015), and then receive pension income from a TRIS.

This strategy can offer the following advantages tax and growth-wise:

  • salary sacrificing reduces a person’s taxable income while the sacrificed contributions reside in a concessionally taxed environment.
  • earnings on pension assets are tax-free within the fund, and the earnings on contributions will be subject to up to 15% tax compared to a person’s marginal rate of tax on income outside the fund.
  • pension income paid from a TRIS to a fund member is tax-free for over-60s, which means tax is payable only on the reduced taxable income from a person’s salary. (For under-60s, pension income still forms part of an individual’s assessable income and the individual is eligible for a 15% pension offset/rebate.)
  • For example, Joan is 62 and earns $90,000 a year plus super. If she does nothing, her income tax bill will be $21,247 plus Medicare Levy (for the 2014/2015 year). She commences a typical TRIS strategy. She salary sacrifices $16,000 into super (her annual concessional cap is $35,000 and her employer contributes $9,000 in Superannuation Guarantee payments). She then receives pension income from her TRIS, which is tax-free so the pension income doesn’t form part of her taxable income. Her taxable income is reduced to $74,000 and Joan’s pension income is tax-free. Joan’s income tax bill is now $15,597 rather than $21,247 plus Medicare Levy (although her additional super contributions are subject to 15% contributions tax of $2,400). Potentially, if Joan runs a self-managed super fund, she can offset the 15% contributions tax by receiving franked dividends from Australian shares. In summary, Joan has saved at least $3,250 in total taxes (while boosting her super account with the tax savings)

2. Aggregating your superannuation funds:

Joining all your super funds into the one fund. This process is relatively simple, but time consuming. But if you need a hand to choose the best super fund for your particular needs and investment risk profile, we can help. This will reduce the clutter in your life and allow you to spend your time determining the best investment allocation for your funds  to get the most from your super fund. There are traps. No super should be moved until exit fees are determined and assessment is made around any insurances that are in place. If you have insurance in super, you should assess whether you (a) need it, (b) are healthy enough to have it replaced and then (c) replace it before moving super. There is much more to consider here such as insurance quality but the point is, get advice from a licensed financial adviser.

3. Income Protection:

The opportunity to get a tax deduction for Income Protection. Income Protection is a simple tax deduction if you pay the annual premium before 30 June. This type of Insurance protects you 24 Hours a day, 7 days a week and you can cover up to 75% of your salary. If you were out of action for 3-4 months could you afford not to have this cover in place, and be able to claim a tax deduction?

4. Beneficiary nomination on your super fund:

Reviewing your nomination of beneficiary on your superannuation funds. The number of incorrect and out of date nomination of beneficiary cases is astounding. Again a simple step to action, request a death Benefit nomination form complete and return. Make sure it is completed correctly, and witnessed where required. Remember, mistakes can be costly.

5. Transferring life cover in to super:

Transferring life cover into SMSFs may have various advantages and limitations..  You need to understand the pro’s and con’s that are relevant to your situation. It can be very beneficial having life cover owned in to your SMSF, but this strategy is not that easy as it carries tax consequences if you get it wrong. You may be entitled to a tax deduction on the premium, As always, get advice to get it right as it is NOT  as straight forward as just changing ownership.

6. Concessional Super Contributions:

Making Concessional contributions to super can be very rewarding from a tax point of view, but all so from a retirement wealth creation perspective. As contributions have age limits, you need to ensure you do not exceed the maximums allowable per tax year. For the 2014/2015 financial year the Concessional limit is $30,000 and $35,000 if you are aged 49 as at the 1st July 2014. The magic of compounding is what makes money work for you in super, the earlier you start the more time your money has to compound. Don’t underestimate this strategy and the wealth that you can accumulate.

7. Life Insurance & Tax Deductible premiums

Life Insurance premiums for Life & TPD may provide you with some tax breaks. In specific circumstances a tax deduction on the premium may be claimed for Life & TPD cover held in a super fund.

But far more important is the protection you provide your family and love ones should the unfortunate occur to you the provider to the family. How would your family survive if your income was taken away? What position would this leave them in? There have been  improvements to existing life Insurance contracts like better definitions. This is a simple task for a life insurance professional to implement, if your don’t have any experience we strongly recommend you obtain  professional assistance from a qualified financial adviser.

The information provided in this blog has been provided as general advice only.  We have not considered your personal financial circumstances, needs or objectives. Not all will be suited for these strategies and there are a multitude of other factors you need to consider before making a final decision.  Most importantly, seek advice from a licensed professional financial adviser and licensed taxation adviser for any tax related queries before making any decisions. WRS are financial and wealth advisers, not tax advisers. Please consult with your tax adviser before acting on anything of a taxation nature in this post.