June 30 is rapidly approaching, which means it is time to seek advice about ways to save tax, especially in this most unusual financial year, in which your income may be way down.
If that’s the case, it may be valuable to postpone personal concessional deductible contributions to superannuation, or repairs and maintenance on investment properties, until a year when your earnings put you in a higher tax bracket and so the deduction would give you a higher refund.
If you have some shares with a capital gain, and some with a capital loss, take advice about whether to sell both before June 30 to offset the gain against the loss. Also, if there is likely to be some capital gains tax (CGT) payable, if you are in a lower tax bracket this year, the CGT may be charged at a lesser rate.
Making superannuation contributions up to your maximum cap of $25,000 a year is a no-brainer. Once you have reached that cap, consider making a contribution for your spouse. If they earn less than $37,000 this financial year, you may even get a tax offset as a bonus. Get advice on your particular circumstances, as this tax offset is unlikely to be a better option than making a deductible contribution for yourself.
To qualify for the spouse contribution tax offset of $540 all you need to do is make a $3,000 non-concessional contribution on their behalf. Your spouse may also like to consider making a non-deductible super contribution for themselves of $1,000, if they are eligible for a $500 government co-contribution.
A re-contribution strategy is worthwhile if you have access to superannuation, and are still eligible to make contributions. You could withdraw up to $300,000 tax-free, then re-contribute it as a non-concessional contribution, on which there would be no entry tax. By doing this you would convert a large chunk of the taxable component of your fund to non-taxable, and so alleviate substantial taxes for your inheritors if you died suddenly and your superannuation went to a non-dependent beneficiary.
The cap for concessional superannuation contributions is $25,000 and for non-concessional is $100,000 for the 2020 financial year.
To make contributions to superannuation and to utilise these caps, your fund must receive your contributions by June 30. If you have more than one fund, all contributions made to all of your funds are added together and counted towards contribution caps. You may also be eligible to carry forward any unused contribution caps to a later financial year. But it is important you do not exceed these caps as penalty taxes may apply.
Don’t forget the strategy of splitting your superannuation with your spouse. To be eligible, the receiving spouse must be under 65 and, if over preservation age, not retired. Where the receiving spouse turns 65 during the year of the split, you need to act before their birthday. The transfer must be completed by June 30.
As long as the contributing member has a sufficient account balance, the amount that can be split is the lesser of 85 per cent of that year’s concessional contribution or $25,000. This means that, if the contributing spouse has made a $25,000 contribution, the maximum split would be 85 per cent or $21,250.
Take advice if you are under 65 and nearing retirement, because apart from the downsizing contribution, it may be your last chance to boost your superannuation. You could still use the bring-forward rule, which will allow you to contribute $300,000 as a non-concessional contribution, and so move funds to an area where tax will be zero once you start to draw a pension from your fund. Keep in mind that no non-concessional contributions can be made if your balance was $1.6 million or more at June 30 last year.
If you are in pension mode now, keep in mind that the minimum drawdown requirements have been halved for this financial year and next. Therefore, provided your budget allows it, you may wish to reduce the minimum pension you have been drawing, and so keep more money in superannuation.
Known as the Financial Wizard of Oz, Noel Whittaker is the author of best-seller Making Money Made Simple and numerous other books on personal finance.