10 Strategies to make the most of EOFY 2021

As 30 June approaches, make ensure that you have addressed all your end of year tax planning including making any super contributions and pension payments.

To help you get started, here are 10 strategies to make the most of your FY21 tax planning.

Claim a deduction of up to $25,000 for personal contributions to super
By making a before-tax contribution into your super, you could boost your retirement nest egg, and by claiming a tax deduction, you could reduce your taxable income.

The $25,000 includes any employer SG contributions, so make sure you don’t go over.

You’ll need to meet the work test if you’re 67 and over, and you wish to use this strategy and will need to ensure you submit the correct paperwork in order to claim the deduction.

Using Carried Forward Contributions

Carry-forward contributions are not a new type of contribution, they are simply new rules that allow super fund members to use any of their unused concessional contributions caps on a rolling basis for five years.

This means if you don’t use the full amount of your concessional contribution cap ($25,000 in 2019, 2020 and 2021), you can carry forward the unused amount and take advantage of it up to five years later.

Carry-forward contributions are calculated on a rolling basis over five years, but any amount not used after five years expires. These carry-forward rules only relate to concessional contributions into super, not non-concessional contributions, as they have different caps.

The best way of checking if you have any unused contributions is to check your MyGov, let us know if you need some help here.

Make a spouse contribution
If your spouse earns under $40,000 each year, their super could probably benefit from a top-up. If you contribute to their super, you may receive an offset of up to $540 in your tax return for contributions of up to $3,000.

Warnings for Superannuation for high-income earners…

The income threshold at which the additional 15% (‘Division 293’) tax is payable on super is $250,000 p.a. Where you are required to pay this additional tax, making super contributions within the cap is still a tax-effective strategy. With super contributions taxed at a maximum of 30% and investment earnings in super taxed at a maximum of 15%, both these tax points are more favourable when compared to the highest marginal tax rate of 47% (including the Medicare levy).

Non-Concessional (After-Tax) Contributions

You also have the option of making after-tax (non-concessional) contributions into Super up to an amount of $100,000.  If you’re eligible you can utilise the “bring-forward” rule and effectively contribute up to $300,000 in the one financial year as long as you haven’t triggered this rule in the prior two financial years.  If you do trigger the “bring-forward” rule you won’t be able to make further non-concessional contributions for the next two financial years.  As the limits increase 1 July, to get more into super if you can, it might be worth waiting to trigger the bring-forward rule until 1 July, unless there is a good strategy behind doing so.
You also need to be careful of your total Super Balance, if you’re nearing $1.6 million or over, you may be restricted to the amount you can contribute.  If you’re unsure it is best to speak to one of the JBS team to determine the level you can contribute.  If you’re over 67 years of age you will need to meet the work test to be able to make the contributions, and if you’re over 65 you can’t utilise the “bring-forward” rule.

Receive a co-contribution by making a personal super contribution
If you earn less than or equal to $41,112, you could contribute $1,000 to super and receive the maximum co-contribution of $500 (based on 50c from the government for every $1 you contribute). The amount of the co-contribution reduces as your earnings increase and cuts out entirely at $56,112. To receive the co-contribution, you will need to meet certain conditions, including a requirement to lodge a tax return for the year and be under 71 years of age at the end of the financial year.

If you are thinking of helping your child or grandchild build wealth for their future, you could assist them by giving them funds that they can contribute to super in order to receive the co-contribution. This will be preserved until they retire after their preservation age or meet another condition of release but can have a powerful compounding effect over their lifetime.

Prepay interest on your investment loans
When you borrow money to make an investment that will generate assessable income, you are generally entitled to a tax deduction for the interest on the money borrowed.

Towards the end of the financial year, many investors who gear into property or shares will prepay interest for up to 12 months (with the 12-month period ending before 30 June next year). Doing so will allow you to lock in the interest rate you pay for the next financial year and will bring forward your tax deduction to this financial year if you are a small business entity or an individual incurring the non-business expenditure.

Prepay your income protection insurance premium
If you have or are considering, income protection insurance, you could claim your premium as a tax deduction. If you choose to pre-pay your premiums for the next 12 months and that 12-month period ends before 30 June next year, you can bring forward a tax deduction from next year to the current year, plus paying annually can save you approximately a months premium. As many Australians are under-insured, this can be a great way to protect yourself, your family and your business, while managing your tax.

Ensure you take your minimum pension payment for FY21
For those whose superannuation benefits are in the pension phase, it is essential that you take your minimum pension amount to ensure your earnings remain tax-free. If you have an SMSF, consider contacting your accountant or administrator to ensure you have taken the minimum amount before 30 June.  Remember the minimum drawings are 50% of the normal schedule due to Covid relief.

HOME OFFICE EXPENSES DURING COVID-19

If you have been working from home due to COVID-19, you may have expenses you can claim a tax deduction for. The ATO allows you to claim using a “Shortcut Method” an amount of $0.80 per work hour for the 2021 year. This amount covers all expenses from working from home, and you do need to keep a record of how you calculated the number of hours you are claiming.

Review your portfolio for tax efficiency

Investors should review their portfolios and clean up those loose ends. If you have carried forward losses, these can be offset against capital gains to minimise tax payable. Be aware that the Australian Tax Office (ATO) has issued warnings against wash sales, which is where an asset is sold and repurchased with the intention of minimising tax payable. Ensure transactions are investment-driven, not tax-driven.

Make a tax-deductible donation to charity
Finally, tax time can be a great time to think about helping others. If you donate to an eligible charity, keep your receipt, and claim a deduction in your annual tax return.

Are you a small business?

There are several other strategies for small businesses, such as expensing asset purchases, deferring income, bringing forward expenses and the like.

It’s important to seek professional advice when considering what strategy is right for you. Please reach out to the JBS Financial team, we’d love to help you minimise your tax and put more money into your pocket this year.