Whether you’re retired or still in the workforce, many are still overpaying tax because they simply aren’t aware of what they can claim. And who wants to pay more tax than they have to? Seeing a financial adviser or a specialised taxation accountant could mean the difference between a tax bill and a tidy lump sum of money to help fund your next sun-drenched holiday in the Whitsundays!
If you have recently retired or are thinking about giving up work in the near future, there are two ways to access the super you’ve worked hard for:
1) Withdraw a lump sum
2) Income stream — a series of payments over a defined period to help you manage your money better.
The option you choose may affect the amount of tax you pay and the balance of your super fund. If you’ve turned 60 years of age and are retired or partially retired — depending on your income and assets — you may find that you’re eligible for tax offsets. The Seniors and Pensioners Tax Offset (SAPTO) can reduce your tax liability. You may also be eligible for tax offsets if you received an income stream from your super if you have reached preservation age. Alternatively, if you have made contributions to a super fund on behalf of your partner (marriage or de facto), who is either not working or on a low income, you may be able to claim a tax offset of up to $540 a year.
Extra super contributions are designed to help you plan for the retirement you’ve always dreamed about. Understanding the difference in concessional and non-concessional caps and your entitlements can be confusing. Contribution caps change depending on your age. If you are over 65, you can make $100,000 non-concessional contributions per year. You may be subject to penalties and super contributions tax if you exceed the non-concessional contribution limit. Additionally, if you have more than $1.6 million in super, your non-concessional contribution is reduced to zero.
Once you turn 65, if you are selling your family home for a property with a little less maintenance, you may be entitled to a one-off super contribution of $300,000, which must be made within 90 days of the sale. This is called the ‘Downsizer’ contribution and can be a cost-effective way of reducing the amount of tax you need to pay for the financial year end. The house must be owned by you or your spouse for 10 years or more and there are other eligibility requirements you need to meet. Check the ATO website to see if you’re eligible.
Many Australians invest in property to provide a passive income stream or so they can free up capital when they retire. Any profits made when you sell the property need to be included in your assessable income in the financial year it is sold. It’s important to know what your entitlements are to offset any tax liability. I recommend keeping accurate records of any repairs and ongoing maintenance to investment properties. Unfortunately, stamp duty, conveyancing and legal fees are not expenses you can claim on. Providing the property is available for lease or tenanted, you can deduct ongoing repairs and property damage, such as gardening, lawn mowing and pest control, which are all tax deductibles.
Most retirees like to keep busy by taking up new hobbies or working part-time. If you’ve started a hobby that produces a secondary income (for example: creating art or crafts for sale at the markets or online, or using your payroll skills to help out small businesses) you may be eligible to claim for expenses such as tools/equipment, working-from-home expenses, training and education expenses, mobile phone use, even a portion of rent or electricity. Before you claim, ensure all expenses are work-related and you must have proof of all purchases too.
To avoid any nasty surprises and to maximise your tax return, I highly recommend seeking the advice of a taxation accountant or proven finance professional well before June 30 this year. It will reduce the stress of the whole process and make your tax return something you can look forward to.
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.
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