2019 Tax Planning Guide for Individuals and Families
Now is the time to review what strategies you can use to minimise your tax before 30 June 2019.
Just imagine what you could do with those tax savings. You could:
- Reduce your home loan
- Top up your super
- Have a holiday
- Deposit for an investment property
- Upgrade your car
The most important thing to remember is that there is no point in spending money to get a tax deduction, unless it’s going to result in something useful for you.
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.
DEDUCTIBLE SUPER CAP OF $25,000 FOR EVERYONE
The tax-deductible super contribution limit (or ‘cap’) is $25,000 for all individuals under age 75. Note that employer super guarantee contributions are included in these caps. Individuals need to pass a work test if over age 65, which requires working 40 hours in 30 consecutive days. Note, that after 1 July 2020, individuals aged 65 or 66 won’t need to meet the work test, but for the time being they do.
Consider, in conjunction with advice from a licensed financial planner such as UNICA Wealth, making the maximum tax-deductible super contribution this year before 30 June 2019. The advantage of this strategy is that superannuation contributions are taxed at between 15% to 30% compared to typical personal income tax rates of between 34.5% and 47%.
Individuals who may want to take advantage of this opportunity include those who:
- work for an employer who doesn’t permit salary sacrifice
- work for an employer who allows salary sacrifice, but it’s disadvantageous due to a reduction in entitlements, and
- are salary sacrificing but want to make a top-up contribution to utilise their full CC cap
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 if your spouse’s income is $37,000 p.a. or less. The offset gradually reduces for income above $37,000 p.a. and completely phases out at $40,000 p.a. and above (previously $13,800 p.a.).
ADDITIONAL TAX ON SUPER CONTRIBUTIONS BY HIGH INCOME EARNERS
If your adjusted taxable income is over $250,000, you are required to pay an additional 15% tax on your super contributions (Division 293). This threshold was $300,000 in the prior year. The 15% tax is in addition to the 15% contributions tax already levied on entry to your fund. This effectively brings the total tax on contributions for those affected to 30%.
Notwithstanding, 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
If you are on a lower income and earn at least 10% of your income from employment or through carrying on a business and make a ‘non-concessional contribution’ to your super, you may be eligible for a Government co-contribution of up to $500.
In 2018/19, the maximum co-contribution is available if you contribute $1,000 and earn $37,697 or less. A lower amount may be received if you contribute less than $1,000 and/or earn between $37,697 and $52,697.
10 WAYS TO REDUCE YOUR TAX
1. 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 your Accountant 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.
2. PROPERTY DEPRECIATION REPORT
If you have an investment property purchased pre-9 May 2017, 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 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.
For residential properties purchased post 9 May 2017, there are limits on depreciation deductions. The new rules prevent investors from claiming depreciation deductions for ‘previously used’ assets (i.e., plant & equipment) contained within second-hand residential properties. That is, if you have purchased a residential investment property after this date, that has plant & equipment already installed and currently being used, you can no longer claim a depreciation deduction for this equipment. You still however can claim a capital works deduction for any structural improvements pre-existing at the time of purchase.
Further you are no longer able to claim any deductions for the cost of travel relating to your residential rental property. As with prior years, the travel expenditure cannot be included in the cost base for calculating your capital gain or capital loss when you sell the property.
3. MOTOR VEHICLE LOGBOOK
Ensure that you have kept an accurate and complete motor vehicle logbook for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2019. You should make a record of your odometer reading as at 30 June 2019 and keep all receipts/invoices for your motor vehicle expenses. Once prepared, a logbook can generally be used for a 5-year period. We have complimentary logbooks at our reception if you require one.
An alternative (with no logbook needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.
4. SACRIFICE YOUR SALARY TO SUPER
If your marginal tax rate is 19% 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.
5. PREPAY EXPENSES AND INTEREST
Expenses relating to investment activities can be prepaid before 30 June 2019. You can prepay up to 12 months of interest before 30 June on a loan for a property or share investment and claim a tax deduction this financial year. Also, other expenses in relation to your investments can be prepaid before 30 June, including rental property repairs, memberships, subscriptions, and journals.
6. 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 pre-paid for 12 months to increase your deductions. Talk to the team here at UNICA Wealth to explore this further.
7. 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.
8. 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.
9. 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 2019.
The contract date (not the settlement date) is generally the key date for working out when a sale or purchase occurred.
10. 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 a Self Managed Super Fund (SMSF) in conjunction with other tax planning opportunities, to maximise the benefit of the SMSF in your circumstances. Our wealth management partners, UNICA Wealth, can assist you with all matters related toSMSFs, so please feel free to contact their team for tailored advice to meet your personal needs.
PERSONAL TAX RATES
The changes announced in the 2018–19 Budget that are now law, these include:
- changes to income tax rate thresholds in the 2018–19, 2022–23 and 2024–25 income years
- a new low and middle income tax offset to reduce the tax payable by low and middle income earners in the 2018–19, 2019–20, 2020–21 and 2021–22 income years
- a new low income tax offset from the 2022–23 income year (to replace both the new low and middle income tax offset and the current low income tax offset).
The below table sets out the reforms on the horizon to personal tax rates:
From 1 July 2018
Income range ($)
From 1 July 2022
Income range ($)
From 1 July 2024
Income range ($)
|Tax free||0 – 18,200||0 – 18,200||0 – 18,200|
|19%||18,201 – 37,000||18,201 – 41,000||18,201 – 41,000|
|32.5%||37,001 – 90,000||41,001 – 120,000||41,001 – 200,000|
|37%||90,001 – 180,000||120,001 – 180,000||–|
|45%||> 180,000||> 180,000||> 200,000|
General advice disclaimer:
The information provided is of a general nature only, in preparing it we did not take into account your investment objectives, financial situation or particular needs.