3 Tips for the EOFY
It’s the end of the financial year again, and we bring you some ideas to utilise to enhance your life goals and if you were to benefit from some extra deductions, then so be it.
Personal Contributions into super
Yes! Sounds like a mouthful. But, if there’s anything we can do quickly to help our long-term goals, then that one thing will be to consider making personal contributions into super.
To do this, you need to know the amount of money you’ve already contributed this tax year so far? How much has your employer contributed on your behalf? The government says that we can contribute up to a maximum of $25k. So, whatever you have contributed this year, you can top that up to the allowable maximum.
Why is this important? Firstly, superannuation is a concessionally taxed environment. Meaning, any money we put in, gets taxed at 15%. If you earn anything more than $37k, this tax environment is better than your marginal tax rate.
Secondly, any money you have invested in superannuation, may benefit from long-term growth potential which helps grow your retirement savings.
Thirdly, any money you put in super, may be claimed as a deduction against your personal income earned. In other words, if you earned $100k this tax year, and paid an extra $15k into super to top your super up to the maximum, then that $15k may be deducted from your $100k earnings leaving your taxable income to be $75k.
Of course, do note that the reason we do this is not for the deductions – as you’re unable to access these funds until you reach your preservation age.
Interests Payments in Advance –
Investing to grow your future wealth is a great thing and we should all take advantage of that. It is likely to borrow to invest – which may amplify total returns. We’re going to make a big assumption that you’ve started to create wealth using some growth assets (property or shares). If you’ve borrowed money to invest in these asset classes, then consider structuring the loan to allow you to pay your interest costs in advance. Benefits of pre-paying interest may be suitable to you.
Let’s break this down in dollar terms. Say your interest repayment on an investment loan is $20k per year. Come June 30, 2019, you get to offset $20k against income earned. By paying next year’s interest cost – say $25k – by June 30, 2019, you get to offset $45k this tax year. Of course, you need to set it up in a way that each year you’re paying the interest in advance.
Now that you know what to do, it’s simple enough to contact your lender to discuss this further and see if this is an option you want to have in your wealth creation tool kit. Remember to check in with us first to see how this may impact your cashflow.
Income Protection Insurance
If you’re yet to recognise that your number one asset is your Income and your ability to continue to earn that income, then we need to have another chat altogether. But if you have, then consider making annual payments and possibly paying next year’s premiums by June 30, 2019.
Paying premiums annually by June 30, allows you to claim the cost of the insurance as a deduction immediately, reducing your out of pocket expenses and saving you money through premium discounts.
Pre-paying next year’s premiums by June 30, allows for a greater deduction. But beware! Once you’ve done this, you need to continue to do this each year. Should you stop prepaying, you’ll miss out a year’s deduction as you’ve already claimed that deduction.
These 3 tips aren’t the only tools you have to take advantage of this tax year. However, they are great strategies. They’re even more powerful if you have an unusually large income in this tax year – through the sale of assets or receiving bonuses – taking you into a different tax bracket. These strategies may help in minimising that impact. We caution you to seek
qualified financial advice and talk to your Accountant before doing any of this as we have not taken your personal circumstances into account. You need to consider if these strategies may be appropriate for you.