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Year-end Tax Planning

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Year-end Tax Planning

This month’s Wealth Pipeline discusses year-end tax planning, specifically minimising capital gains tax (CGT) and maximising tax deductions relating to superannuation contributions. 

Why Tax Plan for Year-end?
  • Minimise taxable income to maximise your tax refund (or minimise tax payable).
  • Utilise government tax offsets and schemes.
Strategies

Depending on factors such as your current year taxable income, your future expected taxable income, expected investment returns, current and future tax rates, your risk profile, your view of legislation risk, government tax offsets and schemes available there may be strategies you can take advantage of.  Some of the strategies we recommend our clients include:

  • Superannuation contribution reserving
  • capital gains tax optimising
  • government co-contribution scheme
  • superannuation concessional contributions
  • spouse superannuation contribution tax offset
  • spouse superannuation contribution splitting
  • first home savings account yearly payment met
  • tax arbitrage
  • delaying/bringing forward income
  • prepaying/postponing expenses  
  • farm management deposits
  • superannuation re-contribution strategy
Capital Gains Tax Optimising

A capital gain or loss is the difference between what someone pays for an asset and what they receive for it when it is sold.  The amount paid includes costs associated with the acquisition, and the received amount is calculated by deducting the cost of disposal from the sale proceeds.  If your capital losses exceed your capital gains in a financial year, you can generally carry the loss forward and deduct it against capital gains in future years. 

Tax is payable on your taxable capital gains in the financial year they are crystallised at your marginal tax rate.  If you have taxable capital gains and unrealised capital losses you should consider crystallising the loss to offset it against the capital gain.  Crystallising a tax loss by selling is not a problem per se, but engaging in wash sales (the quick sale and repurchase of the same asset to crystallise a paper loss) is not allowed and incurs penalties.

If you have any capital gains arising from the sale of a business we recommend that you contact your tax accountant immediately.

General Capital Gains Information
  • The capital gains disposal date is the contract date (not settlement date).
  • If assets are disposed of after 12 months of the purchase date the capital gain is discounted by 50%.
  • If a taxpayer has both capital losses and discountable capital gains, the non-discounted gain is first offset against the capital loss inclusive of any carried forward capital losses before any discount is applied.
Superannuation Contribution Reserving

Contributions reserving can be an effective strategy to increase deductions at year-end without exceeding superannuation concessional caps.  Superannuation funds must allocate contributions to a member within 28 days after the end of the month in which it was made.  This means that contributions made during the calendar month of June may be allocated to the member on any date up to the 28th of the following month of July.

Contribution Reserving-a Worked Example:

The self-employed taxpayer, an individual under age 50 makes a total contribution of $50,000 in two instalments during financial year 14:

  • 30 July 2013        $25,000
  • 1 June 2014         $25,000

The contribution reserving strategy allows the member to allocate their second contribution to financial year 15 (on any date between 1 – 28 July 2014), while taking advantage of an additional $25,000 deduction to their individual financial year 14 income.

The implementation of contribution reserving requires upfront and detailed paperwork (including a reserving investment strategy and trustee resolutions).

Concessional Contribution Caps

Superannuation contributions you make from pre-tax dollars are called concessional contributions and are taxed in the fund at 15%.  During the 2013/14 financial year concessional contributions were capped at $25,000, or $35,000 for people aged 59 and over on the 30th June 2013.  From 2014/15 financial year concessional contributions are capped at $30,000, or $35,000 for people aged 49 and over on 30th June 2014.  

Please note contributions must be received by the superannuation fund on or before 30th June to be tax deductible in that year.

By: June 28, 2010 Tax Tags: , , , ;