Ideally tax planning is something that shouldn’t be too far from top-of-mind throughout the year but we all know some of us will end up in a rush to tie up arrangements just before 30 June. This year is no different and apart from the usual strategies there are some significant changes coming up that could also affect certain individuals.
superannuation contribution caps
In 2011-12 people who are age 50 or more as at 30 June can contribute up to $50,000 (pre-tax or ‘concessional’) to superannuation. These contributions include employer contributions (both super guarantee and salary sacrifice) and personal tax deductible contributions. From, 1 July 2012 that contribution limit will drop back to $25,000 for everyone who is eligible to contribute. Anyone who is using a salary sacrifice strategy, including those who may also be using a ‘Transition to Retirement’ pension should review their level of superannuation contributions.
after-tax super contributions
Eligible individuals can also contribute up to $150,000 per financial year or $450,000 in a three-year period using the ‘bring-forward’ rule. If you have a sizeable amount to contribute to super the timing of when you trigger the bring-forward rule can be crucial – you mightn’t want to do it too early, especially if you are within a couple of years of age 65 and want to retire!
Exceeding these super contribution caps can be very expensive with excess contributions tax applying – you may want to talk to an expert to make sure you avoid such a problem.
private health insurance and medical expenses
From 1 July the government is introducing means testing on the Private Health Insurance Rebate and the Net Medical Expenses tax Offset (‘NMETO’). In both cases the means testing will start to impact those who earn more than $84,000 as a single or $168,000 as a family/couple. At income levels above these, the current 30% rebate available on private health insurance premiums will be reduced, and will cut out completely when income levels reach $130,000 and $260,000 respectively. In addition, the Medicare levy surcharge that applies when individuals do not hold a minimum level of private hospital cover will be progressively increased. Affected individuals who wish to retain private health cover should talk to their health fund about pre-paying their premium before 30 June as a way of maximising their rebate entitlement.
The NMETO will also be means tested and will apply at a less generous level above the lower income thresholds as above. Again, affected individuals should consider pre-paying eligible medical expenses to maximise entitlement to the rebate in the current year.
employment termination payments
From 1 July the concessional tax treatment that applies to ‘Golden handshakes’ or lump sum payments received on ending an employment arrangement will also be limited. This will not affect those who finish employment due to a genuine redundancy or other limited circumstances. Also ending on 30 June 2012 are the transitional rules which allow for concessional tax treatment of certain termination payments and the limited ability to roll them over to super. Individuals who may be able to determine their departure date (eg before or after 30 June) should seek advice as to how these changes may impact them.
Other opportunities may include being available to get a co-contribution from the government for a personal super contribution that you make, getting a tax rebate for making a super contribution for your spouse and being able to claim a tax deduction for a personal super contribution that could be used to offset some capital gains tax. These are just some amongst many more opportunities that may be available to you to take advantage of before 30 June. Please contact your adviser to discuss how these may apply to your personal situation.