Tax tips to consider before 30 June 2014

There is less than a month until the end of the financial year and following on from a very tough Federal Budget this is shaping up to be a very important year-end for tax planning.  This is largely thanks to the increase in tax rates we are likely to see next year from the proposed deficit levy. 

So in preparation for the changes coming, there are some important steps you can take, before the end of the financial year that will assist in reducing your tax payable when your 2014 returns are lodged and in the year beyond to 2015.

Here are a few, and you can see more in our downloadable tax preparation guide ‘113 Tax Tips‘.

 

Avoiding the Deficit Levy

The deficit levy, which is due to commence on 1 July 2014 is likely to impact individuals with a taxable income above $180,000 and is expected to last for 3 years (i.e. the 2014-15, 2015-16, and 2016-17 financial years).  Managing your tax affairs to minimize exposure to the levy is one of our most important tasks this year.

When combined with the 0.5% increase in the Medicare Levy from 1 July 2014, this represents a jump in the top marginal tax rate from 46.5% to 49%.

If you are already on the top marginal tax rate, then increasing your income this year with an offsetting reduction in next year’s income could save you 2.5% in tax on that amount. Strategies could include the following:

  • Choosing not to prepay expenses such as interest.
  • Bringing forward into 2013-14 any expected income from asset disposals via early sale.
  • Deciding not to delay income receipts (if this is a strategy you typically use).

You may also choose to make greater use of salary packaging in the next 10 months to reap the benefits. To match the personal tax increase, the FBT rate increases to 49% from 1 April 2015. Interestingly this means that there is a 2% benefit to packaging taxable fringe benefits for people on more than $180,000 between 1 July 2014 and 31 March 2015.

Changes to the rules around the purchase of depreciating business assets

In 2013 the Government foreshadowed changes to the ability of eligible small businesses to claim an  immediate deduction for expenditure on depreciating assets costing less than $6,500 (and the ability to claim $5,000 for motor vehicle purchases).

Whilst these changes have yet to be enacted they are intended to be retrospectively implemented from 1 January 2014, when the threshold will be reduced to $1,000.  So being aware of this is important in your tax planning process.

Superannuation contributions for the year ending 30 June 2014

Prior to year end it is also important not to forget about superannuation. You may consider any of the following strategies in looking over your superannuation:

  • Where appropriate, ensure that maximum concessional contributions are paid before 30 June. It is also critical that care is taken to not exceed the maximum contribution limits.
  • You may wish to give consideration to making non-concessional contributions to superannuation.
  • If you have a spouse, parent or child on a low income then consideration should also be given to making a non-concessional contribution for them and taking advantage of the government co-contribution.
  • If your superannuation fund is in pension phase then it is important to remember to make the minimum pension payments from your SMSF before 30 June 2014. This is discussed further below.

Understand your minimum Pension Payment requirements

It is worth noting that the pension drawdown relief provided by Government as a result of the downturn in the global financial markets ceased from the 2013-14 year. Minimum pension payment percentages have now reverted back to those last seen in the 2007-08 year.

While the table below provides further details, we recommend that you discuss your personal circumstances with your adviser before making the payment to ensure the correct amount is paid and to also ensure an appropriate buffer given changes.

Age                              Minimum

Under 65                               4%
65 to 74                                 5%
75 to 79                                 6%
80 to 84                                 7%
85 to 89                                 9%
90 to 94                                 11%
95 to whenever                    14%

 

Put in place appropriate trust distributions

As in previous years, if you operate a trust it is crucial that the trust resolves how it will distribute the income of the trust prior to 30 June 2014.

Other items

While there is various other year-end tax planning items that can be considered, it is not possible to provide a comprehensive list in an article such as this. Please discuss any items you wish to consider with your adviser or download our 113 Tax Tips for more insights that you can review in your own time.

Please note that our comments above are general in nature, and should not be relied upon without seeking further advice from your adviser.

National Wealth Advisory Accolade

John Manuel, Director of Financial Services has recently been named as one of five national finalists in the 2013 Australian Private Banking and Wealth Awards under the category Outstanding Wealth/Investment Adviser.

The awards are hosted by the Australian Private Banking Council with the aim to recognise individuals within private banking and wealth services who are excelling in their profession.

As a tremendous personal accolade, John was the only adviser from a non institutional firm to reach the finals in any category.

The process involved in reaching the final was an extensive one. All nominees were asked to prepare a paper on a multi layered case study provided by the Council. Nominees were also asked to provide examples of strategic solutions implemented over the last 12 months to assist clients in meeting both short and longer term financial goals. Finally, John attended a searching interview with the judging panel comprised of some of the industry’s most experienced thought leaders. Outstanding service, understanding of individual client needs and relationship management were key criteria considered.

At Prosperity we pride ourselves on providing best of breed strategic advice to our clients and it gives us great pleasure to see John recognised by his peers at a national level.

 

5 Steps to build a gold medal business

Recently I had the pleasure of attending a private luncheon with Sally Pearson and what I saw was an inspiring woman who has been on an incredible journey to become the Olympic Champion she is today.  Her candid and down to earth conversation with us led me to think about the ingredients of her success and how similar they are in business.

1.  Dare to dream big

Sally is proud of her family and had a happy upbringing; however she did not have the financial support that most of us have enjoyed. Sally was raised by a single mother who worked two jobs to support her athletic career. Without a family car Sally dismissed the inconvenience of catching buses and taxis to training and events, while focussing on her ultimate athletic goal. Many of Australia’s most successful entrepreneurs have had challenging early lives that many in the same situation would use as an excuse for their lack of success. Instead, their vision for business and financial achievement became a beacon that they pursued diligently despite limitations that would dishearten most others.

2.  Overcome the setbacks

Now at the peak of her career, it has been a long and arduous journey for Sally who won the 2001 Australian Under-20, 100 metres title at only 14 years of age. Injuries are part and parcel of an athlete’s life and she worked hard to overcome several major setbacks during 2002 before winning the 100 metres World Junior Championships in 2003.

At the 2006 Commonwealth Games in Melbourne, Sally tripped over a hurdle and fell to the ground during the 100 metres hurdles final, hurting herself badly and costing herself a medal. Then, acute back spasms hampered her preparations for the World Championships in 2009 resulting in a disappointing fifth place.

Sally crossed the line first in the 2010 Commonwealth Games 100 metres final only to be disqualified for a false start. Even in the current season, Sally has twice torn her hamstring and has painstakingly worked to regain her fitness.

Sally’s ability to overcome setbacks is an attribute she shares with successful business leaders. In business, it’s “not if but when” an issue will arise from left field and present new and unexpected challenges. It’s the ability to assess the situation, work through the setback and get back on the path to success that distinguishes people like Sally and those that have weathered multiple storms to build sustainable businesses.

3.  Get a trusted adviser

Sally has been working with the same Athletics Coach for more than 15 years. Described by Sally as a love hate relationship, the candid nature of the advice she has been given has resulted in her achieving a personal best every single year. I have aptly heard advisers labelled as someone who holds your hat and coat while you are having a fight. It need not always be that way however. While the ultimate decisions will always rest with the owner/operator having someone independent from the business who will give you the hard nosed “tell it like it is” advice (which might be difficult to swallow) is invaluable.

4.  Focus on your own race

Just like in sport, where we see controversy after controversy, there is plenty of noise in business these days with analysis, surveys and opinions coming at you 24/7. The hallmark of a great business leader is an ability to assess the environment, then block out all the distractions and put a laser like focus on your your own business strategy.

Sally’s approach to competition is the same on race day. Sally has achieved outstanding success by maintaining complete separation from the other competitors, totally oblivious to their existence and focussed on what she needs to do to produce her best times.

5.  You need to be driven

As a junior Sally wasn’t even the best sprinter in her own Club. The other girl has long since faded from competition as Sally’s stature as an athlete, has grown. Her dedication to her vision, her determination to work through setbacks, her willingness to accept hard nosed advice and her focus on her personal performance to the exclusion of all else, is powered by a single minded drive to be successful. In 2011 the IAAF awarded her the International Female Athlete of the Year. She is the first Australian to receive this award.

It’s the same drive that has enabled some of our leading entrepreneurs to build remarkable businesses. Now I ask you, is it part of their DNA or was it learned?
That is another story.