Every year around this time, a window of opportunity opens to help maximise your end of financial year tax strategies. And if you leave it too late, the chance to improve your financial position could go begging. Here are 4 ways you may be able to make the most of tax time.
1. Manage your contributions caps
There are limits on how much you can contribute to super taxeffectively each financial year. These limits (referred to as ‘caps’) are important for two reasons:
• If you’ve already commenced a super contribution strategy, you need to monitor your contribution levels to help maximise your opportunities without unintended penalties.
• If you’re not using your caps, there’s an opportunity to increase your super contributions.
The following table shows the two types of super contributions, what limits apply and penalties relevant to each.
• Salary sacrifice
(see strategy 2)
• Personal super
you’ve made from
$30,000 if under
$35,000 if over
$180,000 (up to
$540,000 under the
3 year bring forward
Tax on amounts
over the cap
Marginal Tax Rate
(NB: Any concessional
excess of the cap
will also count
If you have room under your caps, the next two strategies explore how you may be able to use that room to your advantage.
2. Start a salary sacrifice arrangement (using before-tax contributions)
You may be able to enter into a salary sacrifice arrangement with your employer, provided you have room in your concessional contributions cap. This may allow you to contribute some of your before-tax salary directly into your super account.
The benefit of this strategy is that your before-tax super contributions are taxed at 15% – compared to your marginal tax rate of up to 46.5% (including Medicare Levy) if you took this money as cash.
An added benefit is that these potential savings are going towards your super balance, so they can compound over time and make a significant difference to your retirement savings. Salary sacrifice arrangements differ depending on your place of work, and you may need to check what rules are in place for you. It’s a good idea to have this conversation with your employer well before 30 June as you can’t salary sacrifice income (including year-end bonuses and commission payments) to which you are already entitled – it must relate to employment income that you will earn in the future.
Remember, if you have a salary sacrifice arrangement in place, it’s important to review the strategy annually to ensure it remains appropriate for your circumstances or any changes in legislation.
3. Move assets into super (using after-tax contributions)
When you hold investments like shares or managed funds outside super, you pay tax on these investments at your marginal tax rate – which could be as high as 46.5% (including Medicare levy).
However, if you held these assets inside super, those same investments would be taxed at 15% or less. Assuming your marginal tax rate is higher than 15%, these tax savings could help your investments grow faster inside super than outside super.
This strategy is best suited to investments you’re putting aside for retirement, as you won’t be able to access them until you reach your preservation age (currently age 55 but increasing) and you are permanently retired from the workforce.
4. Could protecting your family also save you tax?
Income protection is a popular type of insurance that replaces a percentage of your income (usually up to 75%) if you can’t work because of sickness or injury. This insurance may be an effective way to protect your family’s lifestyle as it can give you the money you need to keep up with your financial commitments – such as your household bills and mortgage repayments – while you focus on your recovery.
Another benefit of income protection is that premiums are generally tax-deductible. And if you pay your premium in advance before 30 June, you may be able to bring forward the tax-deduction to this financial year.
Know where you stand before 30 June
The best year-end tax strategies for you depend on your personal circumstances and goals – which may change from year to year. Likewise, the strategies can vary over time with changes to rules and regulations. To make sure you know where you stand before 30 June, speak with your tax and financial advisers as soon as possible.