June 30 marks the end of the financial year. The end of June always seems a long way off, until it's right on your doorstep. Luckily, Stefan and Tom have some helpful tips on how to be ready and how to be smart about your taxes at the same time.
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Stefan Angelini
G'day, g'day, g'day. Thanks for tuning in for another episode of Real Wealth with Stefan Angelini, and Tom. What a bloody fun subject we're going to do today. We're talking about taxes, or...
Tom Gleeson
Exciting stuff.
Stefan Angelini
Preparing for 30 June 2023.
Tom Gleeson
Yeah. Exhilarating.
Stefan Angelini
End of financial year is approaching and we get bloody excited when this happens.
Tom Gleeson
Yeah, excited. A little bit of trepidation as well. It's busy.
Stefan Angelini
It is busy. Do you know what I'm doing for April, May, June?
Tom Gleeson
Riding your bike to work?
Stefan Angelini
I'm not going to drink.
Tom Gleeson
All right.
Stefan Angelini
Cutting out alcohol.
Tom Gleeson
Why?
Stefan Angelini
Well, cutting out alcohol, this is like a client function.
Tom Gleeson
Okay. That's where you would do most of your drinking.
Stefan Angelini
Anyway, I want to cut out alcohol mostly because we get busy.
Tom Gleeson
Yeah, okay.
Stefan Angelini
Let us tell you why we get busy. Tommy, what are we doing today?
Tom Gleeson
We're going to look at tax planning strategies for obviously 30 June. Well, 30 June, I consider it to be approaching because I know what it gets like. It may seem miles off, it's really not. So we're going to look at ways that you can plan for your own individual taxes coming up to the end of the financial year. Broadly speaking, we've got a couple of topics to go into. Super, looking at maximizing personal deductible contributions. We're also going to go into income protection and how I suppose the ownership of that can have an effect on your tax. Then for the older generation, we're going to look at the changes that happen post turning 60 and what can be done there for your own tax situation.
Stefan Angelini
Heaps to go through, but we'll keep it short and sharp. I thin /k why we should keep it short and sharp is because it all relates to personal situation. We can talk about all the ideas under the sun, but really it all relates down to your personal circumstances. This is probably a point where you go, Maybe I need to speak to a financial advisor before the year end. For anyone out there, we are cutting off advice to new people at the end of April just so we can make sure we get everything done for our existing clients in May and June and make sure those April clients actually get done as well. A bit of a heads up out there. Before we get into it, just remember, it's just general information.
Tom Gleeson
I said. This was going to happen. Sorry, everyone.
Stefan Angelini
Welcome back. That was a little fire alarm that just went off, but we're going to keep on filming because we are rebels.
Tom Gleeson
This is like the violin players on the Titanic. When everyone's evacuating, we're going to plow ahead. There's also a false alarm, so don't worry, we're fine.
Stefan Angelini
Don't stress, we are safe. Still, hardcore. Just general information, please don't consider it as personal advice. As I said before, if you want personal advice, please go and consult your licensed financial advisor because this does all relate to your personal circumstances. Tommy, in saying that, let's get into it. What are we going to go through first?
Tom Gleeson
What we first want to look at is concessional contributions. There are rules around how much you can and can't contribute limits on per financial year. What we find a lot is people haven't maxed out their contribution, so they could tip in a certain amount, well, $27,500. And through their employer contributions and maybe a salary sacrifice arrangement, they may not be maximizing that contribution. So that's item number one. How do you get the most out of that cap?
Stefan Angelini
So the way it works is with a personal deductible contribution. So you said you could put in 27 and a half each year now at the moment. Let's say you earn $200,000 a year, then you're on the highest marginal tax rate of 47%. If you put $10,000 in from your savings into super, then you should get back 47% of your taxes you paid. So $4,700. So it's the 45% plus 2% Medicare Levy. You will pay tax going into super. So you got to lodge what's called that notice of intent to claim form when it's done.
Tom Gleeson
That's what June means to me.
Stefan Angelini
Super important. And then you'll pay 50% tax in super. So call it $1,500. So still, massive net benefit. Just remember that when you do put money into super, make that extra contribution, it's in super. It's gone until you can access it again. But people say, What are you super for? It's an investment vehicle, basically. So save taxes, top up your investment vehicle. If you're thinking about tax planning, well, then you're probably making good money anyway. And therefore, that might be a strategy for a lot of those people. So top money into super. Important factor. It needs to land in your super fund before 1 July. So 30 June is the latest. So we had clients last year that tried to do it through their payroll, ended up landing on the first of July. Contribution fell into this financial year.
Tom Gleeson
Yeah.
Stefan Angelini
Not fun.
Tom Gleeson
No. That's why we're trying not to leave it to the last minute. Also, we try to do it ourselves.
Stefan Angelini
Where possible.
Tom Gleeson
The next one we want to look at is the different rules around low income earning, the way that you can contribute to super and get a sort of tax offset.
Stefan Angelini
Yeah.
Tom Gleeson
We can demo. Last time we did a demo where you and me were a couple. Well... Do you want to do that again?
Stefan Angelini
Okay. So you are the high income earning professional.
Tom Gleeson
Cool. Good.
Stefan Angelini
And I have had to step back from work for a little while because I've just had our second kid and I'm not going to be working this much this year. And my wage is less than $40,000, so my taxable income is less than $40,000. And therefore, we've got some spare savings because I've done pretty well. And you go, Well, let's put some of our savings into your super. The government is going to recognize that and go, This person has to put much into super. They're not working that much. We're going to put an extra contribution of $540 into their super fund. When you got a low income, anyone on a low income, you put an extra money into Super, you get that co contribution from the government, which is a good little one to get a little bit extra back if you can.
Tom Gleeson
Worth considering.
Stefan Angelini
Yeah.
Tom Gleeson
You're great for someone who's had two kids, by the way.
Stefan Angelini
Thanks, buddy.
Tom Gleeson
Next one is catch up concessional contributions.
Stefan Angelini
This is I love this one. This came into effect a little while ago, but basically, you can go back to 2018, '19 financial year and use contributions you haven't used, so five financial years ago. Basically, if you haven't made $130,000 of deductible contributions up till June 23, and your super balance is less than $500,000, then you can make a large contribution into super and claim tax deduction for it. It's a great one.
Tom Gleeson
You're using anything from that cap that wasn't utilized from the previous five years. It can be tipped in at once.
Stefan Angelini
If you go back to that deductible contribution example I used before, 10 grand, you're wage is $200,000. Imagine if you haven't used 50 grand for contributions, you can get a massive deduction.
Tom Gleeson
Big opportunity.
Stefan Angelini
We've been using that for heaps of clients over the last few years. When people get their tax returns back, they go, I really like this strategy because you just get 12 grand just drops into your bank account and tax returns done. It's good fun.
Tom Gleeson
With that off the back of that, do we need to look at super splitting?
Stefan Angelini
Yeah. So super splitting, so super splitting is really important now. So we spoke about transfer balance cap is how much money can you have in tax free super? And then unless you've been living under a rock, you would have heard that the government said they want to tax anyone with more than three million bucks in super. An extra tax, right? So if you've got more money in your super than your partner does, then you can do super splitting and split some of your super across to them. There's certain eligibility rules to it, but basically you can take 85% of your previous year's contribution.
Tom Gleeson
Yep.
Stefan Angelini
85% because they take 15% tax of your contribution. So if you put in 20 grand and they take $3,000 away and you've got 17 grand you can split.
Tom Gleeson
Yeah okay.
Stefan Angelini
So that's the... You can shift it across to your partner. Then all of a sudden, if your balance is $500,000 and your partner's balance is $100,000, this slowly creeps up to catch yours. And that way, you're both tracking towards having three million bucks each. Instead of three million bucks and one million dollars. So that's why you might want to think about super splitting for 30 June.
Tom Gleeson
And the eligibility you mentioned, that would be a good time to pick up the phone because we can check. I mean, it is case by case, but we can figure out, Yeah, this is one for you, or No, it doesn't qualify for the following reasons.
Stefan Angelini
Yeah, that's it.
Tom Gleeson
Cool. The next topic we want to look at is how income protection relates to, or the way that you own it and therefore the way that you pay for it for your income protection policy, how that has tax implications.
Stefan Angelini
Yeah. So income protection is when you receive income protection, you tax on it. And therefore, when you pay for it, you can claim a tax deduction. Most people, a lot of people have it through their Superfund. There's a restrictions on having it through your Superfund. But if you're in a year when you got a really high tax bill and you can do what's called a cancel and replace, drop it out of your Super, pay for it in your personal name, and then you can claim a tax deduction in the financial year in your personal name. If you've got tax and you just want to save on taxes, but you know you're going to pay for the income protection anyway, let's say it's $2,000, pay for it out of your own pocket, and you get the tax deduction in that financial year. More reserved for people that just want to maximize their net position because they get more tax deductions in their personal name than in their Super.
Tom Gleeson
Okay. Yeah, good one.
Stefan Angelini
That's why I brought up that one. Yeah.
Tom Gleeson
And then beyond that, the next one to look at is sale of assets. Sorry, the timing of the sale of assets. And I think this one relates more specifically to people who have a fluctuating income or there's an element of commissions and bonuses that sort of affect their income each year.
Stefan Angelini
Yeah. If you got a massive commission check coming through this year and you know it's going to land, why would you want to sell an asset in the same financial year? So you have a pretty big tax implication. Or if you know you're going to get a big commission check next year, maybe pull forward the sale of the asset. Now, importantly, the sale of the asset, if you got shares, it's pretty easy because you sell them on the market. The day you sell them is the date you can trigger them. Trigger it. But when you're selling, say, a property, if it's an investment property, it's a capital event. So the date of the landing of that sale is the date of the signing of the contract.
Tom Gleeson
Right.
Stefan Angelini
Which causes issues for people. People because don't realize that.
Tom Gleeson
So you have less control over that than when you just sell securities on the market.
Stefan Angelini
So just important thing to think about is the timing, what your situation is for this financial year or next financial year, and therefore when to sell things, if you know you want to sell something anyway.
Tom Gleeson
Yeah.
Stefan Angelini
Importantly is also if you've got a capital gain coming through, how can you get capital losses? So if you do have an investment portfolio, say, and it's lost money over the last little while, you can offset some of your gains by realizing capital losses through your, say, your share portfolio.
Tom Gleeson
Right.
Stefan Angelini
And that's what some people might want to do just to decrease their tax event.
Tom Gleeson
Yeah. Okay. So similar to the planning, the timing of the sale of assets, another one that's sort of looking into the future is prepaying interest. So knowing that this event is coming and then planning for it appropriately.
Stefan Angelini
So you said before timing around when you earn your income, if you got big commissions coming for this financial year, but next financial you're not really sure you want to prepay your interest on your investment property. You can ask the bank to do that. Bring it all forward to the financial year that you actually paid for it, and that might be beneficial.
Tom Gleeson
And then the last category, what I want to look at mentioned before is for the retirees, for post 60, you can enter a transition to retirement phase and then the rules change around there. And there's a bit more of an element of control around how you're taxed at that age, in that age bracket. So sorry, 60 up to 74, I think it is we're talking about.
Stefan Angelini
Yes, it just started where you can put money into super up to 74. So if you don't have the cash to contribute to super and you're older than 60, you can pull money out of super and put it back in. They claim a tax deduction for it. Or what people don't realize is that when you put money into super and you claim a deduction for it. So your SGC salary sacrifice, personal deductible contributions, it goes into what's called a taxable component. So any event you die and it goes to someone that isn't your dependent, so it isn't your wife or your kid that's really young, then they're going to pay an extra 17% tax on that taxable component. So before 30 June, what a lot of people do is they withdraw money from super, put it back in, there's a non concessional contribution cap of 110 grand, and therefore you clean up that death tax component. So hopefully making sure that when you pass, there's less tax that needs to be paid before your super money goes to your kids.
Tom Gleeson
Yeah. So two things on that. Do we need to break down where the 17% came from? Is that getting too much into the minutiae?
Stefan Angelini
Put simply, you only pay 15% tax on the way in. The government wants their top up, which is 17% extra.
Tom Gleeson
And the other thing is so what you're effectively doing with this strategy is the money stays in super. It's always within super, but within that, broadly speaking, there's taxable and tax free, and you're grabbing it from taxable and pulling it across into tax free.
Stefan Angelini
That's it.
Tom Gleeson
So it's not pulling money out of super and back in, and it always stays in that super environment. But you want to take as much out of this category as you can and have it over here.
Stefan Angelini
Yeah, that's the tax planning part of it. So 30 June, super exciting. Here's more strategies, but they're the main ones that we see popping up. And just remember that if you want to use anything, go and speak to a licensed financial advisor because they'll be able to tell you what to do, especially when it comes around super, because that's probably the main things we see. P-O-Y-G wanting to earn if you're a business owner, there's more things you can do. So reach out to your accountant or even come speak to a licensed financial advisor that knows how to deal with business owners.
Tom Gleeson
Yeah, and let's go get ready for June 30. Actually, let's get you the building burned down.
Stefan Angelini
Thank you for listening. Thank you for sticking with us. Glad to see we're fine. Go off. Have a great day.
Tom Gleeson
Thanks.
Stefan Angelini
Thanks a lot. Bye. See you soon.
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