End of Financial Year Tips

Clever year-end strategies

1. Boost savings and save tax via salary sacrifice

If you're likely to receive a bonus before 30 June 2006, you should consider asking your employer to salary sacrifice your payment into superannuation. By using this strategy, you can pay less income tax this financial year and make a larger after-tax investment.

Pay less income tax

When you salary sacrifice a bonus (or salary/wages) into superannuation, the contribution is taxed at a maximum rate of 15%. If taken as cash, your bonus will be taxed at your marginal rate (which could be as high as 48.5%). Depending on your circumstances, a salary sacrifice strategy could reduce the tax rate payable on your bonus by up to 33.5%.

Note: To be effective, the salary sacrifice arrangement needs to be in place before your employer determines your bonus entitlements

2. Top-up your super with help from the Government

If you're entitled to superannuation from your employer, you should consider making personal after-tax contributions into your fund before 30 June 2006. By using this strategy, you may qualify for a Government co-contribution this financial year and receive tax-free benefits when you retire.

Qualify for a Government co-contribution

If you're a lower income employee and you make a personal after-tax super contribution of $1,000, the government may add up to $1,500 to your super account. That's a return of up to 150% on the amount contributed.

To qualify for the full co-contribution, you need to earn $28,000 p.a. or less and a reduced amount may be paid if you earn less than $58,000 p.a. Other conditions also apply.

3. Contribute for your spouse and save tax

If your spouse has a low income, you should consider making super contributions on their behalf from your after-tax pay or savings. By using this strategy before 30 June 2006, you can receive a tax offset of up to $540 this financial year and maximise the benefits of super as a couple.

Receive a tax offset of up to $540

To qualify for the full tax offset under the current rules, you need to make a minimum after-tax contribution of $3,000 into super on behalf of your spouse. Your spouse must earn less than $10,800 in the financial year in which the contribution is made. If your spouse earns more than $10,800, a reduced offset may be payable and the offset cuts out if your spouse earns $13,800 or more per annum.

4. Split super contributions with your spouse

If you make voluntary super contributions between 1 January and 30 June 2006, you may be able to split these contributions with your married or defacto spouse next financial year. By using this strategy now (and in future financial years), you can boost your retirement savings and receive your combined super in a more tax-effective manner.

Boost your retirement savings

Putting more money into tax-effective investments like super can be a great way to improve your quality of life in retirement.

Receive your combined super in a more tax-effective manner

If you then apply to transfer your voluntary super contributions (as well as any contributions received from your employer if applicable) into your spouse's account, you and your spouse can collectively. Take advantage of two Reasonable Benefit Limits (RBLs). Access two tax-free amounts of up to $129,751 (in 2005/2006) when receiving your super benefits as a lump sum.

5. Purchase life and TPD insurance tax effectively

If you take out life and total and permanent disability (TPD) insurance through a super fund (rather than via a separate policy outside superannuation) you may be able to save on premiums and/or purchase more insurance cover.

Save on premiums

The same tax concessions that apply when investing in super also apply when purchasing insurance through a super fund.
If you're eligible to make salary sacrifice contributions, you may be able to purchase insurance through a super fund with pre-tax dollars. For more info on salary sacrifice, see Strategy 1.

6. Delay withdrawing super benefits to save lump sum tax

If you're over 55 and you want to cash-out some of your super, you should consider deferring your withdrawal until after 30 June 2004. By using this strategy, you can save lump sum tax and make a larger after-tax investment.

Save lump sum tax

By withdrawing your super benefits next financial year, you may be able to receive a larger tax-free amount. On 1 July each year the tax-free threshold on the post-June 1983 component is indexed in line with a measure of wage inflation known as Average Weekly Ordinary Time Earnings (AWOTE).

If you expect your marginal tax rate will be lower next financial year, further tax savings can be made on the post-June and pre-July 1983 components of your super benefit (if applicable).

Finally, if you have a large super benefit, you can take advantage of the higher Reasonable Benefit Limits (RBLs) that come into effect on 1 July each year. Your RBL limits the amount of concessionally taxed superannuation and related benefits you can receive over your lifetime.

7. Use Losses to reduce capital gains tax

If you have to pay capital gains tax (CGT) this financial year, you should consider selling poor performing assets that no longer suit your circumstances before 30 June 2006. By using this strategy, you could save on CGT this financial year and free up money for more suitable investment opportunities.

Save on CGT

By selling a poor performing asset, you can use the capital loss you incur to offset a realised capital gain from another asset in the same financial year - including capital gains received as part of a managed fund distribution. As a result, you can reduce (or eliminate) your CGT liability.

8. Defer assets sales to manage capital gains tax

If you need to sell a profitable asset, you should consider delaying the sale until after 1 July 2006. By implementing this strategy, you can defer paying capital gains tax (CGT). Depending on your situation, you may also be able to reduce your CGT liability.

Defer paying CGT

CGT is generally only payable by individuals after they lodge their tax return for the financial year in which an asset is sold. By selling an asset after 30 June 2006, you may be able to delay paying tax on your capital gain for up to 12 months - in some cases longer.

Reduce your CGT Liability

If you expect to earn a lower taxable income next financial year (e.g. because you plan to retire or intend taking parental leave), the marginal tax rate you have to pay on realised capital gains in 2006/07 may decline considerably - resulting in a significant tax saving.

9. Pre-pay 12 months interest on an investment loan

Borrowing to invest (gearing) can help you to achieve your long-term lifestyle and financial goals. However, if you've already commenced a gearing strategy (or you're about to set one up), then pre-paying your interest bill for up to 12 months before 30 June 2006 may enable you to bring forward your tax deduction and pay less income tax this financial year.

Bring forward your tax deduction

If you take out a fixed rate investment loan and pre-pay up to 12 months interest loan before 30 June, you can bring forward an expense that would otherwise be tax-deductible in the following financial year. This is despite the fact the majority of the interest payment may relate to servicing your loan after 1 July 2006.

Pay less income tax

This additional tax deduction could help you to minimise your taxable income and result in some significant tax savings

10. Pre-pay 12 months income protection insurance premiums

If you're unable to work for an extended period due to illness or injury, income protection insurance can help pay your bills and maintain your lifestyle. However, if you take out income protection insurance before 30 June 2006, and pay your premiums for up to 12 months, you may be able to bring forward your tax deduction and pay less income tax this financial year.

Bring forward your tax deduction

If you pre-pay your income protection insurance premiums for 12 months before 30 June, you can bring forward an expense that would otherwise be tax-deductible in the following financial year. This is despite the fact that the majority of the premium may relate to insurance cover after 1 July 2006.

Pay less income tax

This additional tax deduction could help you to minimise your taxable income and result in some significant tax savings.

Other tax tips before the end of the financial year

Defer income if possible and bring forward any deductions. This is because of reduced marginal tax rates effective from the first of July 2006.
Review your salary packaging because of the same reason as above.
Is a tax effective scheme suitable for you needs before end of June? Be careful don't fall for the usual traps. Seek advice? Where? From us of course.
Consider whether any CGT rollovers are available for capital gains made during the year.

End of Financial Year Tips - tips on getting all the tax deductions you deserve