Tax planning reminders for 30 June 2012

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1 Tax planning reminders for 30 June 2012 Keep your receipts!... 1 Government Co-contributions... 1 Personal deductible contributions... 3 Split super with your spouse... 3 Employer Superannuation Contributions... 3 Work uniforms... 3 Investment expenses... 3 Capital Gains Tax... 4 Delay any income... 4 Capital loss to offset tax... 4 Stay in it for the long-haul... 4 Salary sacrifice into super... 4 Medical expenses... 5 Income protection insurance... 5 Private health insurance... 5 Keep your receipts! The most common reason why people don t take advantage of tax deductions is simply because they don t keep receipts! While keeping receipts for big ticket items is necessary, you don t always need a receipt for the smaller items such as stationery and books. You do not need receipts if your work-related expenses are $300 or less, but you must be able to show how the deduction relates to your income and how you calculated the amount you claimed. Government Co-contributions If you are an Australian resident, are working and earn below $61,920 a year, you may be eligible for the Government Co-contribution to super. 1

2 To claim your Co-contribution you will need to make a personal, after-tax contribution to your super before 30 June 2012, and the government will kick in some extra cash towards your retirement (once you lodge your tax return). You may wish to consider doing this on behalf of children or grandchildren if you are in a position to do so. The table below shows how much you may need to contribute to receive the maximum Government cocontribution for your income level during the 2011/12 financial year:- If your assessable income + reportable super contributions + reportable fringe benefits are... And you contribute this... You'll be eligible for the maximum cocontribution $31,920 or less $1,000 $1,000 $33,920 $933 $933 $35,920 $867 $867 $37,920 $800 $800 $39,920 $733 $733 $41,920 $667 $667 $43,920 $600 $600 $45,920 $533 $533 $47,920 $467 $467 $49,920 $400 $400 $51,920 $333 $333 $53,920 $267 $267 $55,920 $200 $200 $57,920 $133 $133 $59,920 $67 $67 $61,920+ $0 $0 2

3 Personal deductible contributions You could significantly boost retirement savings, as well as reduce taxable income. The new caps allow deductible contributions of $25,000 per year for under 50s, and until 30 June 2012, up to $50,000 per year for those aged 50 plus. Split super with your spouse If your spouse is on a low income, you could receive a tax offset for making a contribution to your spouse s super fund as long as their assessable income (including reportable fringe benefits) is less than $13,800. However, to claim the maximum offset of $540, your spouse must earn $10,800 or less and you need to contribute $3,000 to their super in the same financial year. Because it s a tax offset, you ll make a direct saving against your income tax liability. Employer Superannuation Contributions If you have employees and make super contributions on their behalf, make sure you have deposited these prior to 30 June. This will ensure you can claim the tax deduction your business is allowed. If payments are made post 30 June you won t be able to claim the tax deduction in the current financial year. Work uniforms If you wear a uniform to work, you can claim the cost, providing it following the ATO guidelines. The uniform must be distinctive, such as one that has your employer s logo permanently attached to it. It must either be a non-compulsory uniform that your employer has registered with AusIndustry or a compulsory uniform that can be a set of clothing or a single item that identifies you as an employee of an organisation. You can also claim the cost of: occupation-specific clothing which allows people to easily recognise your occupation, such as the checked pants a chef wears when working, and which are not for everyday use protective clothing and footwear to protect you from the risk of illness or injury, or to prevent damage to your ordinary clothes, caused by your work or work environment. You can claim the cost of renting, repairing and cleaning any of the above work-related clothing. Investment expenses Gearing (borrowing to invest) can be an effective way to achieve long-term lifestyle and financial goals. As an added bonus, the interest that you pay on your investment loan is tax deductible. If you have commenced a gearing strategy, or are about to set one up, pre-paying your interest bill for up to 12 months before 30 June 2012 may enable you to bring forward your tax deduction and pay less tax this financial year. 3

4 Capital Gains Tax If you have a Capital Gains Tax (CGT) liability this year, there are a few strategies that you could consider to reduce the impact but they must be implemented before 30 th June. Contact us to discuss on Ph (03) Delay any income Thinking of selling off a profitable asset, such as shares or property? It may be worth deferring this sale until after 30 June In doing so, you will delay incurring CGT for another financial year. So while you will still need to pay the CGT eventually, freeing up short-term cash flow may be beneficial depending on your circumstances. Capital loss to offset tax Selling poor performing assets that no longer suit your circumstances before 30 June 2012 is another option. By selling a poor performing asset (ie an asset where the value has decreased) and thus incurring a capital loss, you may be able to offset a realised capital gain from another asset in the same financial year, allowing you to manage your Capital Gains Tax liability. If you don t have a capital gain to offset you can carry forward your loss into future financial years. It may also free up money for more suitable investment opportunities. Stay in it for the long-haul If you have purchased assets (such as shares or managed funds) during the market downturn and they have risen in value, you might rethink selling them. Otherwise, you may have to pay significant CGT. A way to trim CGT is to hold onto the investment for more than 12 months. Since 21 September 1999, individual investors have been entitled to claim a 50% discount on capital gains they make on assets held for longer than a year. Salary sacrifice into super In the long term, salary sacrificing has many benefits as it not only helps to increase your super savings but could also reduce the amount of tax you pay. You can select an amount of your pre-tax salary (or even a discretionary cash bonus) to automatically deposit into your superannuation fund. As a result, your contribution will be taxed at a maximum rate of 15%, as opposed to your marginal rate, which may be as high as 46.5%. Additionally, the reduced salary amount that you actually take home then becomes your assessable income for tax purposes. This may enable you to move down a tax bracket, reducing your amount of total tax payable. 4

5 Medical expenses Taxpayers whose net medical expenses exceed the current threshold of $2,000 for the year may be able to claim medical expenses. The offset is calculated as 20% of the excess of net medical expenses over the threshold. Your Medicare financial tax statement will help you claim the offset in your tax return. The statement shows you how much you have paid for medical expenses and how much you have claimed back from Medicare. Income protection insurance Premiums are generally tax deductible, so if you purchase income protection insurance and pay your premium before 30 June 2012, you will be able to include the deduction in this year s tax return. Business owners may also be able to claim deductions on their business insurance premiums. Private health insurance If you earn more than $80,000 as a single person or $160,000 as a couple you can end up paying a minimum of $800 in extra tax if you don t have private health insurance cover. You may want to consider taking out an appropriate level of private patient hospital cover for the whole of the next financial year if you want to avoid paying the surcharge in the future. Please note that any advice contained in this alert is to be regarded as general investment advice and factual of nature rather than personal advice. As it is not possible to take into account each client's individual circumstances, before acting on the recommendations contain in this report clients must determine the appropriateness of a particular recommendation in the light of their investment objectives and financial situation. 5