June has arrived which means our focus begins to turn to assisting clients with their tax planning strategies to make the most of the opportunities available to minimise their tax obligations come lodgement time.
King & Whittle take tax planning seriously, and the ability for our clients to meet with their adviser to discuss and action tax planning strategies to get the biggest advantage possible is something we pride ourselves on. Whilst your advisers are always thinking proactively to add real value to you and your business, we encourage you to contact your King & Whittle adviser to understand what tax planning strategies and tips might work best for you and your circumstances.
For our clients who are Trustees of Family Discretionary Trusts, we will be contacting you throughout the month to ensure your Trustee Resolutions are adequately documented to ensure distributions of profits made to those as intended by the Trustee.
Please don't hesitate to contact your King & Whittle adviser should you have any questions regarding end of year tax planning strategies that might be appropriate for you and your circumstances. We welcome the opportunity to add real value and genuine tax savings to you, and tax planning season in June is a perfect time to align your strategies with your long term goals.
Avoid the rush: Get ready for June 30
It seems like June 30 rolls around quicker every year, so why wait until the last minute to get your personal finances in order?
With all the uncertainty and special support measures of the past two years, it’s possible your finances have changed for better, or for worse. So it’s a good idea to ensure you’re on track for the upcoming end-of-financial-year (EOFY).
Starting early is essential if you want to make the most of the opportunities on offer when it comes to your super and tax affairs.
New limits for super contributions
A key task for EOFY is maximising your super contributions to boost your retirement savings and take advantage of the available tax benefits. Annual contribution limits for super rose this financial year, so this strategy is even more attractive.
From 1 July 2021, most people’s annual concessional contributions cap increased to $27,500 (up from $25,000). This allows you to contribute a bit extra into your super on a before-tax basis, potentially reducing your taxable income.
A potential strategy is to make a personal contribution for which you claim a tax deduction. These contributions count towards your $27,500 cap and were previously available only to the self-employed. To qualify, you must notify your super fund in writing of your intention to claim and receive acknowledgement.
In addition to the above, if you have any unused concessional contribution amounts from previous financial years and your super balance is less than $500,000, you may be able to “carry forward” these amounts from the 2019 year to further top up. Depending on your circumstances, you may be able to contribute (and claim as a tax deduction) an additional $75,000 (2019 + 2020 + 2021 year contribution caps) into your super fund prior to 30th June 2022. This can be a particularly attractive strategy where your taxable income is expected to be higher than average, and you can utilise a tax deduction at a higher marginal tax rate (potentially 47%) as opposed to the rate at which the contribution is taxed within the superannuation fund (15%)
Non-concessional super strategies
If you have some spare cash, it may also be worth taking advantage of the higher non-concessional (after-tax) contributions cap. From 1 July 2021, the general non concessional cap increased to $110,000 annually (up from $100,000).
These contributions can be a great help if you’ve reached your concessional contributions cap, received an inheritance, or have additional personal savings you would like to put into super. If you are aged 67 or older, however, you need to meet the requirements of the work test or work test exemption.
For those under age 67 (previously age 65) at any time during 2021-22, you may be able to use a bring-forward arrangement to make a contribution of up to $330,000 (three years x $110,000).
To take advantage of the bring-forward rule, your total super balance (TSB) must be under the relevant limit on 30 June of the previous year. Depending on your TSB, your personal contribution limit may be less than $330,000, so it’s a good idea to talk to us before making your contribution.
More super things to think about
If you plan to make tax-effective super contributions through a salary sacrifice arrangement, now is a good time to discuss this with your employer, as the ATO requires an effective arrangement to be documented prior to commencement.
Another option if you’re aged 65 and over and plan to sell your home is a downsizer contribution. You can contribute up to $300,000 ($600,000 for a couple) from the proceeds without meeting the work test.
And don’t forget making a contribution into your low-income spouse’s super account could score you a tax offset of up to $540. To take advantage of these super tax concessions, ensure your contributions meet all the eligibility rules and are received by your super fund well before June 30.
Get your SMSF shipshape
If you have your own self-managed super fund (SMSF), it’s important to check it’s in good shape for EOFY and your annual audit.
Administrative tasks such as updating the fund’s minutes, lodging any transfer balance account reports (TBARs), checking the COVID relief measures (residency, rental, loan repayment and in-house assets), and undertaking the annual market valuation of fund assets should all be started now.
It’s also sensible to review your fund’s investment strategy and check whether the fund’s assets remain appropriate.
Know your tax deductions
It’s also worth thinking beyond super, to see what else you can do to reduce tax.
If you’ve been working from home due to COVID-19, you can use the shortcut method to claim 80 cents per hour worked for your running expenses. But make sure you have detailed records of hours worked to substantiate your claim.
You also need to prepare supporting documents to claim work-related expenses such as car, travel, clothing and self-education.
Check whether you qualify for other common expense deductions such as tools, equipment, union fees, the cost of managing your tax affairs, charity donations and income protection premiums.
Review your investment portfolio
After a year of strong investment market performance, now is also a good time to do a thorough analysis of your finances outside super.
Review your investment strategy, benchmark your portfolio’s performance and check whether any assets need to be sold or purchased to rebalance the portfolio back into line with your strategy.
You might also consider realising any investment losses, as these can be offset against capital gains you made during the year.
There’s a lot to think about, so if you would like to discuss EOFY strategies and super contributions, please don't hesitate to contact your King & Whittle adviser.
2021-22 EOFY tips for business owners
Ensure any Super Guarantee and employee salary sacrifice contributions you plan to claim a tax deduction for in 2021-22 are made prior to June 30
Consider whether to take advantage of the temporary full expensing regime that allows an immediate 100% write-off of eligible assets purchased and installed in the period 6 October 2020 to 30 June 2022
Ensure your quarterly BAS, GST returns and Single Touch Payroll reports are all up-to-date
Check whether your enterprise meets the eligibility rules for small business capital gains tax (CGT) concessions if you are contemplating winding up or selling your business soon
Consider bringing forward any expenses due early in the new financial year to reduce your taxable income. If you are an Small Business Entity (SBE) taxpayer, you may be able to pre-pay eligible expenditure (such as rent, management fees, interest, subscriptions) for up to 12 months in advance.
Review aged receivables and write off any bad debts so you can claim a tax deduction
Review Fixed Asset schedules and write off any scrapped or obsolete plant & equipment
Where staff bonuses or commissions are applicable, ensure these are committed to and documented to allow the provision (if paid after 30 June) to be deductible in the 2022 year.
Where possible, deferral of income to July 2022 to defer the taxing point to the 2023 income year and achieve a "Tax Holiday"
Make physical repayments on existing Division 7A loans to minimise any dividends to pay to shareholders in lieu of a physical cash repayment.