When it comes to getting the most (money) from your annual tax return, there is always a lot to think about, so we’ve provided a short checklist of options that could open the door to some great opportunities. The key here is to plan ahead.
tax deductions—lower your liability
- Pay now for some of next year’s expenses
If you have some spare cash available, paying for certain expenses early could mean you also get your tax break back from the ATO earlier. Expenses that are met in July could leave you waiting more than 12 months for the return. A popular expense in this category is interest on an investment loan, but be careful because not all expenses qualify you for a tax deduction in advance.
- Cash back for some of your insurance premiums
Except for income protection, most life insurance premiums are not tax deductible at a personal level. But holding your death or permanent disability cover through a superannuation fund can achieve a similar outcome. This is an important consideration when setting up a new policy. Or in some cases you may be able to replace an existing policy with one inside superannuation, which is particularly helpful when cash flow is tight.
super contributions—don’t waste the limits
June 30 is not just about deductions for expenses. It’s also a good time to consider the superannuation contribution limits that may be wasted if you don’t act soon. And the temporary higher contribution limits make this an even more important issue for this financial year.
- Salary sacrifice or concessional contributions, especially from age 50
The annual limits for these types of tax-deductible contributions are currently $50,000 for those over age 50 and $25,000 for those under 50. As from 1 July 2012 the limit will become $25,000 per annum regardless of age. The Government has proposed increasing the limit to $50,000 for those over age 50 with less than $500,000 in total superannuation assets, although this was recently deferred during the release of the 2012/13 Federal Budget.
If you’re an employee, this limit covers both employer super guarantee contributions and salary sacrifice. Do you need to adjust your arrangement?
- After-tax contributions: careful planning around age 65
The ability for anyone under 65 (whether working or retired) to contribute $150,000 each year to super as non-concessional contributions was left intact by the 2010 federal budget. So was their ability to contribute $450,000 in a single year by bringing forward the limit for the following two years—but care must be taken if you are heading towards 65.
For example, let’s say John is 64, retired, and needs to place $500,000 into super following an inheritance. In his eagerness to maximise his balance, he sends a cheque of $450,000 straight to the fund. What John needs to know is that this action means he cannot contribute again until age 67, and even then, he would need to be back at work to do so. John may be better advised to contribute just $150,000 this year, and then he would be free to place the remaining $350,000 into the fund next year.
When considering ways to boost your super with these types of contributions, it may be worthwhile considering more than just the cash funds you have available, but be careful. As from 1 July 2012, self managed super funds can no longer accept as contributions in-specie transfers of assets where an underlying market exists, for example shares, and these must now be bought and sold on-market. Small business owners who have a SMSF may find that now is an ideal time to consider transferring their business premises into the fund however strict rules regarding valuation of the property must be followed.