With 30 June only a few days away, we want to remind you to finalise any outstanding end-of-financial year (EOFY) transactions and draw your attention to some important superannuation and taxation considerations, including minimum pensions, superannuation contributions, income protections premiums, and working from home deductions.
Minimum Pensions
If you are in pension phase, ensure that you have drawn your minimum pension before 30 June 2022. If you fail to do so, the pension account will cease and all assets supporting the pension will be deemed not to be in retirement phase for the entire financial year. As a result, your fund will lose its tax exemption on investment earnings. Please note that, as part of its response to COVID-19, the Federal Government has halved the minimum pension required to be taken for the current financial year. The current minimum pension amounts can be found here.
Superannuation Contributions
Before 1 July 2022, you may want to consider taking advantage of concessional (pre-tax) or non-concessional (after-tax) contributions. The current concessional contributions cap is $27,500 and the current non-concessional contributions cap is $110,000. Those with total superannuation balances below $500,000 on 30 June 2021 who did not contribute the full amounts in 2019, 2020, or 2021 may be eligible to contribute the balance of the caps in the current financial year, in addition to the $27,500, and claim a deduction for the full amount. Additionally, those who are under age 65 may be eligible to ‘bring forward’ up to two additional years of non-concessional contributions, allowing a contribution of up to $330,000 in a single year. It is important to note that individuals with a balance in excess of $1.7 million are not eligible to make further non-concessional contributions.
Alternatively, if you are over 65 and sell a home that you’ve owned and lived in for more than 10 years, you may want to consider downsizer contributions (if eligible) which could enable you to contribute up to $300,000, outside the usual non-concessional contributions cap.
Managing Capital Gains and Losses
The current global economic challenges have, in some respects, created a year of two halves. Many may have seen some reasonable capital gains realised in the first half of the year to then potentially see some significant capital losses on paper in the second half of the year. For some, it may be wise to consider strategies before year-end to minimise realised capital gains with offsetting capital losses, if appropriate.
Pre-Pay Your Income Protection Premiums
If you have income protection insurance, you may be able to claim your premiums as a tax deduction. Those who choose to pre-pay their premiums for the next 12 months may be able to bring forward a tax deduction from the next financial year to the current financial year, potentially reducing taxable income in the current financial year.
Working From Home Deductions
Over the course of the 2022 financial year, you may have been required to work from home for a period of time and you may be able to claim deductions for the cost of running and maintaining a home office. These expenses may include internet, telephone, electricity, heating, and depreciation on furniture and equipment. The deductions can be calculated and claimed using actual amounts or a cents per work hour calculation. As always, it is important you keep records of any relevant expenses and discuss the most appropriate calculation method with your tax adviser.
Trust Distributions
Careful and detailed consideration should be given to trust distributions as ordinary family arrangements may no longer be acceptable to the ATO in light of the draft guidance in relation to Section 100A reimbursement agreements and Division 7A of the Income Tax Assessment Act 1936 released earlier this year.
Pre-Pay Expenses
Small businesses (with an aggregated turnover below $50 million) may want to review their expenses and consider bringing payments forward (subject to cash availability) in order to claim the tax deductions in the current financial year.
Instant Asset Write-Off Rules and Accelerated Depreciation
If you are considering the acquisition of plant and/ or equipment, there are significant tax benefits to purchasing and installing before 30 June 2022. As of 12 March 2020, the instant asset write-off thresholds changed. Furthermore, assets not eligible for the instant write-off may be depreciated by 50%, provided they were purchased after 12 March 2020.
In order to access either the instant write-off or accelerated depreciation, the asset must be purchased, installed, and ready for use before 30 June 2022. Any deduction claimed must be apportioned to the extent by which the asset is used for income-earning activities (i.e. business purposes). Most assets (including new and second-hand) are eligible for the instant asset write-off, except for a small number of exclusions. Only new assets are eligible for the accelerated depreciation rules. There is no limit on the number of eligible assets to which you can apply these measures.
If you would like more information on any of the above strategies, please get in touch with us before 30 June to allow enough time for us to assess your situation and implement any strategies that may be of benefit to you.
Any advice included in this communication is general and has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider its appropriateness having regard to these factors before acting on it. Any tax information refers to current laws, is not based on your unique circumstances and should not be relied on as tax advice. Before you make any decision about whether to acquire a certain financial product, you should obtain and read the relevant product disclosure statement.