Hands up if you would like to pay less tax. If you’ve had an unexpectedly good year or have sold an asset, tax can become a problem. With the right advice, there may be a solution. Local business owner, Mitch recently came to us for help after selling a property. He was looking down the barrel at a large tax bill and wanted to know if he could minimise this if possible.
The capital gain from the sale of Mitch’s property amounted to $150K. As he had owned the property for more than 12 months, he was eligible for a 50% discount on the capital gain. This meant that $75K would be added to any other income he earned within the financial year, and he would pay tax at his marginal rate.
After looking into his circumstances, we were able to advise Mitch that he would be able to contribute $75K into his superannuation as a concessional contribution. The ATO stipulates that from 2019–20, carry-forward rules allow you to make extra concessional contributions to your superannuation – above the general concessional contributions cap of $25K – without having to pay extra tax.
The carry-forward arrangements involve accessing unused concessional cap amounts from previous years. Concessional caps include employer super guarantee contributions (including contributions made under a salary sacrifice arrangement), and personal contributions claimed as a tax deduction. An unused cap amount occurs when the concessional contributions you made in a financial year were less than your general concessional contributions cap of $25,000 per financial year. In Mitch’s case, he has not made any contribution to super over the past three years which is why he will be able to contribute all the remaining proceeds from his property sale into super.
If you have a surplus in savings and are looking to reduce tax, this is one of the easiest methods to achieve it. You just need to check how much capacity you have left in your caps. This is a good way to get your savings working harder for you at the same time as providing a handy tax deduction. It is important that the contributions are made prior to June 30 if you wish to take advantage of this strategy.
At this time of the year, we encourage our clients to look for opportunities to boost super and minimise tax. If your circumstances aren’t suited to this approach, there are other avenues worth pursuing. This can be a good time to bring forward deductible expenses and defer income. Ways of doing this include purchasing new equipment or machinery, carrying out maintenance, or pre-paying insurance premiums. Deferring invoices until after June 30 is another simple way of minimising your taxable income.
As financial planners, we are all about after-tax return on investment. It is always pleasing for us to be able to help our clients come up with solutions, especially when it comes to tax! If you need help with navigating the complexities, please get in touch.
General Advice Warning: The information provided in this article is general in nature and does not consider your particular investment objectives, financial situation or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.
Dobbrick Financial Services (Gympie) Pty Ltd ABN 48 931 205 109 and Dobbrick Financial Services (Ipswich) ABN 86 100 184 521 & DFS Oakland ABN 64 340 527 395 and their advisers are authorised representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
