Tax Strategies To Create Wealth

With the end of the financial year soon upon us, now is a great time to look at the different measures you can take in the lead up to 30 June to improve your financial situation.

Below we discuss some of the ways that you can take action and reap the rewards into the future.

1. Salary sacrifice or make personal concessional contributions to superannuation

Making concessional contributions into superannuation remains one of the most effective ways for many Australians to increase their retirement wealth while saving tax. The key to this strategy is that it provides dual benefits.

Firstly, instead of being taxed at your marginal tax rate, concessional contributions are taxed at 15% or less when received by your super fund. This can provide an up front tax saving for anyone whose marginal tax rate exceeds 15%.

Secondly, any contributions made into super will be housed in a concessionally taxed environment at least until retirement. Earnings within your super fund are also taxed at 15% or less, which means your contribution could spend many years earning you money at very low tax rates. In addition, if you use your super balance to start a pension in retirement, earnings then become tax free.

If you are an employee, you may wish to look at salary sacrifice contributions. This involves making a written agreement with your employer to swap some of your future salary in return for increased employer super contributions.

On the other hand, if you are self-employed or not working, you can instead make personal concessional contributions into super. Once you make a contribution, you simply notify your super fund that you wish for part or all of it to be considered a concessional contribution. You are then entitled to claim a tax deduction for the contribution amount in your tax return.

If you are thinking of salary sacrificing or making a personal concessional contribution into super, strict limits and timeframes apply, so speak with your Count Adviser to work our your best course of action.

2. Use the Government to increase your super balance

The Government Co-contribution is a scheme where the Government will match your after tax super contributions up to $1,000 per financial year depending on your situation. A 100% return on your investment is certainly hard to beat.

To be eligible for the scheme, you must receive at least 10% of your income as an employee, or from running a business. You must also earn less than $61,920.

Currently you will receive the maximum $1,000 co-contribution if you make an after tax contribution of at least $1,000 and your total income is less than $31,920. A partial co-contribution may still be payable if you earn above $31,920 or you contribute less than $1,000.

While $1,000 may not sound like much, those who take advantage of the co-contribution scheme over many years can expect to benefit by many thousands of dollars at retirement because of the benefits of compounding.

3. Commence a transition to retirement pension

A number of years ago, the Government introduced rules allowing those who were aged 55 and above to commence a ‘transition to retirement’ pension form their superannuation balance without retiring fully from the workforce. The intention of this change was to allow a potential retiree to reduce their working hours instead of retiring, and supplement their reduced salary with pension payments from their super fund.

Surprisingly though, there is no requirement to reduce working hours upon commencing a transition to retirement pension. This allows you to undertake a potentially powerful strategy which involves continuing to work full time, increasing your salary sacrifice contributions to super (or personal concessional contributions if you are self-employed) and using payments from a transition to retirement pension to help meet your income needs.

This strategy can provide a significantly higher superannuation balance upon your eventual retirement, while at the same time, ensuring your net income is not reduced while you continue to work.

If you have reached aged 55 and are continuing to work, speak with your Count Advisers as soon as possible about whether a transition to retirement pension can benefit your financial situation.

4. Prepay deductible interest for the next 12 months

If you have borrowed to invest using a margin loan or home equity loan, you are likely to be able to claim a tax deduction for the interest payments that you make. Importantly, in most cases this tax deduction applies during the financial year that you make the interest payment, even if you are paying now for interest that is due next financial year.

The rules allow you to claim an immediate tax deduction where up to 12 months of future interest is paid in advance.

This prepayment strategy can work particularly well if you have an unusually high taxable income in this financial year – for example, if you have sold investments and have an assessable capital gain.

5. Review investment portfolio and realise capital losses

If you have realised capital gains in this financial year, now can be a great time to consider selling investments that have capital losses. Capital losses realised in this financial year can generally be offset against capital gains, lowering your tax liability.

Regular review of your investment portfolio is always important to ensure that your investments remain high quality and adequately diversified.

6. Take out income protection insurance and prepay premiums

Taking out income protection insurance is amongst the most important wealth protection measures you can take because it protects the one thing that no effective financial plan can survive without – your regular income.

The premiums that you pay personally for income protection insurance are generally tax deductible. In addition, you may have the ability to prepay up to 12 months worth of premiums for your income protection policy, which would allow you to take out a policy in this financial year, and claim a tax deduction in this financial year by prepaying the next 12 month’s worth of premiums.

7. Personal tax offsets

With tax time approaching, now is a good time to review your eligibility for various personal tax offsets that are available. They include:

  • Mature Age Workers Tax Offset: Up to $500 available to those who have reached age 55 and have income from working or running a business within certain limits.
  • Medical Expenses Tax Offset: Up to 20% of any net medical expenses over $1,500 during the financial year incurred for you, your spouse and most children.
  • Education Expenses Tax Offset: Up to $375 (per primary school student) or $750 (per secondary school student) per financial year to cover half of the cost of eligible education expenses during the financial year.
  • Entrepreneurs’ Tax Offset: Up to 25% of income tax payable in the financial year if your business has aggregated annual turnover of $50,000 or less. A partial offset applies for turnover above this level, which is phased out when turnover exceeds $75,000.

Your adviser can assist you to determine your eligibility for these offsets, which can help to significantly lower your tax liability.

Next Steps
With so many strategies and incentives operating on a financial year basis, now is the time to take action to ensure that you are best placed to benefit.

Whether your goal is to secure your retirement by maximising your superannuation balance, build wealth outside superannuation, protect your wealth or minimise your tax liability, before you implement any strategies outlined here, speak to your Count Adviser who is well placed to assist you in meeting all of your financial goals.

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