There is less than a month until the end of the financial year and following on from a very tough Federal Budget this is shaping up to be a very important year-end for tax planning. This is largely thanks to the increase in tax rates we are likely to see next year from the proposed deficit levy.
So in preparation for the changes coming, there are some important steps you can take, before the end of the financial year that will assist in reducing
your tax payable when your 2014 returns are lodged and in the year beyond to 2015.
Here are a few, and you can see more in our downloadable tax preparation guide ‘113 Tax Tips‘.
Avoiding the Deficit Levy
The deficit levy, which is due to commence on 1 July 2014 is likely to impact individuals with a taxable income above $180,000 and is expected to last for 3 years (i.e. the 2014-15, 2015-16, and 2016-17 financial years). Managing your tax affairs to minimize exposure to the levy is one of our most important tasks this year.
When combined with the 0.5% increase in the Medicare Levy from 1 July 2014, this represents a jump in the top marginal tax rate from 46.5% to 49%.
If you are already on the top marginal tax rate, then increasing your income this year with an offsetting reduction in next year’s income could save you 2.5% in tax on that amount. Strategies could include the following:
- Choosing not to prepay expenses such as interest.
- Bringing forward into 2013-14 any expected income from asset disposals via early sale.
- Deciding not to delay income receipts (if this is a strategy you typically use).
You may also choose to make greater use of salary packaging in the next 10 months to reap the benefits. To match the personal tax increase, the FBT rate increases to 49% from 1 April 2015. Interestingly this means that there is a 2% benefit to packaging taxable fringe benefits for people on more than $180,000 between 1 July 2014 and 31 March 2015.
Changes to the rules around the purchase of depreciating business assets
In 2013 the Government foreshadowed changes to the ability of eligible small businesses to claim an immediate deduction for expenditure on depreciating assets costing less than $6,500 (and the ability to claim $5,000 for motor vehicle purchases).
Whilst these changes have yet to be enacted they are intended to be retrospectively implemented from 1 January 2014, when the threshold will be reduced to $1,000. So being aware of this is important in your tax planning process.
Superannuation contributions for the year ending 30 June 2014
Prior to year end it is also important not to forget about superannuation. You may consider any of the following strategies in looking over your superannuation:
- Where appropriate, ensure that maximum concessional contributions are paid before 30 June. It is also critical that care is taken to not exceed the maximum contribution limits.
- You may wish to give consideration to making non-concessional contributions to superannuation.
- If you have a spouse, parent or child on a low income then consideration should also be given to making a non-concessional contribution for them and taking advantage of the government co-contribution.
- If your superannuation fund is in pension phase then it is important to remember to make the minimum pension payments from your SMSF before 30 June 2014. This is discussed further below.
Understand your minimum Pension Payment requirements
It is worth noting that the pension drawdown relief provided by Government as a result of the downturn in the global financial markets ceased from the 2013-14 year. Minimum pension payment percentages have now reverted back to those last seen in the 2007-08 year.
While the table below provides further details, we recommend that you discuss your personal circumstances with your adviser before making the payment to ensure the correct amount is paid and to also ensure an appropriate buffer given changes.
Age Minimum
Under 65 4%
65 to 74 5%
75 to 79 6%
80 to 84 7%
85 to 89 9%
90 to 94 11%
95 to whenever 14%
Put in place appropriate trust distributions
As in previous years, if you operate a trust it is crucial that the trust resolves how it will distribute the income of the trust prior to 30 June 2014.
Other items
While there is various other year-end tax planning items that can be considered, it is not possible to provide a comprehensive list in an article such as this. Please discuss any items you wish to consider with your adviser or download our 113 Tax Tips for more insights that you can review in your own time.
Please note that our comments above are general in nature, and should not be relied upon without seeking further advice from your adviser.
Prosperity Wealth Advisers is one entity within the Prosperity Advisers Group which spans three office location.
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