Leenane Templeton – Newcastle Business Accountants, Business Advisors & Financial Planners

Tag: salary sacrifice

  • Get ready for June 30 – NOW!

    Get ready for June 30 – NOW!

    When it comes to getting the most (money) from your annual tax return, there is usually a lot to think about, so we’ve identified a few options that could open the door to some opportunities to save on tax.

    The key here is to plan ahead.

    Deductions — lower your tax liability

    • Pay now for some of next year’s expenses

    If you have some spare cash available, paying for certain expenses before June 30 could mean you get your tax break back from the ATO earlier. Expenses paid in July could leave you waiting more than 12 months for the return. A popular expense in this category is prepaying interest on an investment loan, but be careful because not all expenses qualify for a tax deduction in advance.

    This year the ATO is focusing on work-related expenses. If you are planning to claim expenses for things like a home office, mobile phone, tools and equipment, etc, make sure you claim only eligible expenses and have the paperwork to substantiate them.

    • Cash back for insuring your income

    You can claim the premiums you have paid for your income protection insurance as a tax deduction. Note that you can only claim the portion of the premium that covers you for loss of income, not for any benefits of a capital nature. Premiums for other personal insurance cover such as life, critical care or trauma cannot be claimed. You also can’t claim deductions for premiums that are paid from your superannuation contributions if your policy is held in your fund.

    Super contributions — don’t waste the limits

    June 30 is not just about deductions for expenses. It’s also a good time to review your superannuation contributions to date and take advantage of the annual caps.

    • Salary sacrifice or concessional contributions

    The annual limit for these types of tax-deductible contributions is $25,000 per annum, regardless of age. If you’re an employee, this limit covers both employer super guarantee and salary sacrifice contributions.

     

    How much has your fund received in contributions so far this year? Do you need to review and adjust your current arrangements?

    • After-tax contributions

    Anyone under 65 (whether working or retired) can contribute $100,000 each year to super as after-tax or non-concessional contributions. You can also contribute $300,000 in a single year by bringing forward the limit for the following two years. But – when it comes to super there’s usually a ‘but’ – check your total super balance to ensure any extra contributions do not exceed the general balance transfer cap of $1.6 million for 2017/18.

    And one final point on super contributions – the total contributed is based on how much is received by your fund, not when you sent it to the fund. Another reason why planning ahead is crucial.

    These are just a few ways to manage how your money is taxed. Depending on your circumstances, other options may be available. Your licensed adviser can work with you to help you achieve what is best for you this financial year. But please don’t leave it too late.

     

    For more information speak with the Leenane Templeton team on (02) 4926 2300 or visit www.leenanetempleton.com.au

     

  • Salary sacrifice vs personal contributions to super

    Salary sacrifice vs personal contributions to super

    Amongst the changes made to superannuation effective 1 July 2017 was the welcome and sensible move to give everyone who makes a personal contribution to super the option of claiming a tax deduction for it. Prior to this date, tax deductions on personal contributions could only be claimed by the “substantially self-employed”.

    The upshot is that, if you are an employee, there are now two ways in which you can optimise the tax-effectiveness of your additional super contributions:

    • opt for a salary sacrifice arrangement, whereby your employer makes additional superannuation contributions beyond the compulsory superannuation guarantee (SG) amount from your pre-tax earnings and reduces your salary accordingly; or
    • make a personal contribution and claim a tax deduction when you submit your tax return.

    Generally, higher income earners gain the greatest benefit from either of these strategies. Lower income earners may be better off not claiming the tax deduction and receiving a government co-contribution if eligible.

    Which option?

    For starters, employers don’t have to offer salary sacrifice. If they don’t, claiming a tax deduction is the only option.

    Another thing to look out for: if salary sacrifice is available, will your employer still make SG payments on your pre-sacrifice salary? Legally, employers only need to pay SG on the actual salary amount, so for every $1,000 of salary sacrifice you would lose $95 in SG contributions. In this situation, you will most likely be better off claiming a tax deduction.

    Fortunately most employers do the right thing and don’t reduce their SG contributions. The federal government has also announced plans to ensure salary sacrifice does not result in a reduction in SG payments. If this happens, it will pretty much level out the playing field between salary sacrifice and tax-deductible personal contributions, but some subtle distinctions remain.

    Let’s look at Jenny and Brian. They both earn $120,000 a year, and want to contribute an extra $12,000 pa ($1,000 per month) to superannuation as concessional (pre-tax) contributions. Jenny opts for salary sacrifice and will receive SG contributions based on her pre-sacrifice salary. Brian decides to make his own contributions and later claim them as a tax deduction.

    Both will see their overall annual income tax bill drop by $4,680. After allowing for 15% tax on the super contributions, they are both better off by $2,880 for the year.

    The key difference is that Jenny will enjoy her tax benefit each payday. Brian needs to wait until the end of the financial year and submit his tax return before he can receive any benefit from his choice.

    On the other hand, Brian’s regular pay will be more than Jenny’s as his gross income remains at $120,000 pa compared to her $108,000. This gives him more flexibility. For example, he can wait to make his entire contribution just prior to the end of the financial year – if he hasn’t been tempted to spend it in the meantime. However, if he makes regular contributions to his super fund, his net disposable income each month will be lower than Jenny’s. Only when he receives any tax refund might they be back on equal terms.

    Beware the rules

    While the greatest benefit of extending tax deductibility on personal contributions goes to employees who are unable to access salary sacrifice, it’s still a positive move that provides everyone with flexibility and choice. However, whether you opt for salary sacrifice or claiming a tax deduction, there are rules to be followed. Talk to your financial planner about the best superannuation contribution strategy for you.

    For more information contact our team on (02) 4926 2300 or contact our advisors us here