Minimise Your Personal Tax

Tax Planning Guide

The tax rates for the 2019/2020 Income Year are as follows:

Resident Individuals

Income threshold Tax Rates
$0 – $18,200 Nil
$18,201 – $37,000 19%
$37,001 – $90,000 32.5%
$90,001 – $180,000 37%
$180,001  and over 45%

The tax-free threshold is effectively higher for those who qualify for the low income tax offset, the seniors and pensioners’ tax offset and certain other offsets.  Also, the marginal tax rates outlined in the table exclude the Medicare levy of 2%.

Non-Resident Individuals

Income threshold Tax Rates
$0 – $90,000 32.5%
$90,001 – $180,000 37%
$180,001  and over 45%

The Medicare levy of 2% is NOT payable by Non-Residents

It is important to remember that there is no point in spending money to get a tax deduction unless it’s going to result in something useful for you.

Superannuation Contributions

While you might not be flush with cash now and able to put large amounts into superannuation, it’s important that you are aware of what is possible to maximise your super balance and possibly reduce your tax at the same time.

Deductable Super Cap of $25,000 for Everyone

Concessional (before tax) super contributions include super contributions made on your behalf, any salary sacrifice contributions you make, or any personal contributions that you claim a tax deduction on in your tax return.  These contributions are taxed at 15% when they are received by your super fund (up to a cap of $25,000 per year), provided you earn less than $250,000 annually.

The people that would benefit the most are those who earn above $37,000 per year, as this is when the marginal tax rate plus Medicare Levy rises to 34.5%.  Claiming a tax deduction on super contributions effectively makes your tax rate only 15%.  That’s a big tax saving.

Catch up Super Payments

From 1 July 2018, people can make “carry-forward” concessional super contributions if they have a total superannuation balance of less than $500,000.  People can access their unused concessional contributions caps on a rolling basis for five years.  Amounts carried forward that have not been used after five years will expire.

The first year in which you can access unused concessional contributions is this 2020 financial year.  This is an excellent concession to help you get on top of your super.

Spouse Super Contributions

You may be eligible for a tax offset of up to $540 on super contributions of up to $3,000 that you make on behalf of your spouse (married or de facto) if your spouse’s income is $37,000 or less.

The offset gradually reduces for income above $37,000 p.a. and completely phases out at $40,000 p.a. and above.

Additional Tax on Super Contributions by

High Income Earners

The income threshold at which the additional 15% (“Division 293”) tax is payable on super $250,000 p.a.

Where you are required to pay this additional tax, making super contributions within the cap is still a tax effective strategy.

With super contributions taxed at a maximum of 30% and investment earnings in super taxed at a maximum of 15%, both these tax points are more favourable when compared to the highest marginal tax rate of 47% (including the Medicare levy).

Government Co-Contribution to Your Super

Those who earn between $38,564 and $53,564 during the 2020 financial year may also be eligible for super co-contributions from the government of 50 cents for each dollar, up to a maximum of $1,000 in non-concessional (after tax) contributions.

Working from home?  A New Option to Claim

From 1 March 2020 until at least 30 June 2020, the ATO has devised a new method for work-related tax deductions in light of more people working from home.  This allows people to claim 80 cents for each hour of work to cover running expenses not reimbursed by their employer such as electricity & gas, decline in value of & repair of capital items such as office furniture, cleaning expenses, phone & internet expenses, stationary & decline in value of computers & devices.

This new method is optional & multiple people in the same house can use.  The choice of which method to maximise deductions will depend on use – the less you use your phone, internet & have smaller depreciation expenses the more likely it would be beneficial to use this new method.

Ownership of Investments

A longer-term tax planning strategy can be reviewing the ownership of your investments.  Any change of ownership needs to be carefully planned due to capital gains tax and stamp duty implications.  Please seek advice from us prior to making any changes.

Investments may be owned by a Family Trust, which has the key advantage of providing flexibility in distributing income on an annual basis and an ability for up to $416 per year to be distributed to children or grandchildren tax-free.

Property Depreciation Report

If you have an investment property, a Property Depreciation Report (prepared by a Quantity Surveyor) will allow you to claim depreciation and capital works deductions on capital items within the property and on a the property itself.

The cost of this report is generally recouped several times over by the tax savings in the first year of property ownership.

Motor Vehicle Log Book

Ensure that you have kept an accurate and complete Motor Vehicle Log Book for a least a 12 week period.  The start date for the 12-week period must be on or before 30 June 2020.  You should make a record of your odometer reading as at 30 June 2020 and keep all receipts/invoices for your motor vehicle expenses.  Once prepared, a log book can generally be used for a 5 year period.

An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.

Sacrifice your Salary to Super

If your annual income is $37,000 or more, salary sacrifice can be a great way to boost your superannuation and pay less tax.  By putting pre-tax salary into super rather than having it taxed as normal income at your marginal rate you may save tax.  This can be especially beneficial for employees nearing their retirement age.

Prepay Expenses and Interest

Expenses relating to investment activities can be prepaid before 1 July 2020. You can prepay up to 12 months of interest before 1 July on a loan for a property or share investment and claim a tax deduction this financial year.

Also, other expenses can be prepaid before 1 July, including:-

  • Rental property repairs
  • Union fees
  • Memberships, subscriptions to trade, professional or business associations
  • Magazine, journal and newspaper subscriptions
  • Seminars and conferences
  • Income protection insurance (excluding death and total/permanent disability)

Insurance Premiums

Possibly your greatest financial asset is your ability to earn an income. Income Protection Insurance generally replaces up to 75% of your salary if you are unable to work due to sickness or an accident. The insurance premium is normally tax deductible, plus you get the benefit of protecting your family’s lifestyle if you cannot work due to sickness or an accident. It’s a small price to pay for peace of mind. Like rental property interest, income protection premiums can also be prepaid for 12 months to increase your deductions.

Work Related Expenses

Don’t forget to keep any receipts for work-related expenses such as uniforms, training courses and learning materials, as these may be tax-deductible.

Private Health Insurance and Taxes

Don’t get stung by the Medicare Levy Surcharge.

Income Thresholds

  Base Tier Tier 1 Tier 2 Tier 3
  No Charge 1% 1.25% 1.5%
Single $90K or less $90K-$105K $105K-$140K > $140K
Family $180K or less $180K-$210K $210K-$280K > $280K
  • If you don’t have hospital cover by 1 July after your    31st birthday, your premiums will go up by 2% per year because of the Lifetime Health Cover loading.
  • Take out private health insurance and, depending on how much you earn, get nearly 34% of your premiums back thanks to the private health insurance rebate.

Realise Capital Losses

Tax is normally payable on any capital gains. You should consider selling any non-performing investments you hold before 30 June to crystallise a capital loss and reduce or even eliminate any potential capital gains tax liability. Unused capital losses can be carried forward to offset future capital gains.

Defer Investment Income & Capital Gains

If practical, arrange for the receipt of Investment Income (e.g. interest on term deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2020.

The Contract Date (not the Settlement Date) is generally the key date for working out when a sale or purchase occurred.

Is an SMSF Suitable for You?

Now is a good time to seek specific advice in relation to this question, as it may be appropriate to establish an SMSF in conjunction with other tax planning opportunities, to maximise the benefit of the SMSF in your circumstances.

Important Information

This is general advice only & does not take into account your financial circumstances, needs & objectives.  Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountant at JKR Accounting.  Information is current at the date of issue and may change. 

Talk to us TODAY before the 30 June 2020 deadline for assistance to reduce your tax!

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