Use this Checklist as a guide to 2018/19 year-end tax planning opportunities to be covered in a client meeting, whether over the phone or in person.
Personal superannuation contributions
Individuals are able to make a personal deductible superannuation contribution regardless of whether they are self-employed or not. In most cases, individuals should be able to review their payroll reports to determine the difference between the concessional limits and the employer contributions.
Individuals should be reminded that the concessional contributions cap is $25,000 for the 2018/19 income year.
Additionally, individuals earning over $250,000 in taxable income need to be aware that Div 293 tax will apply to concessional superannuation contributions. These additional contributions are taxed at 15% on top of the 15% contributions tax paid by the superannuation fund. The Div 293 tax may be paid from an individual’s own money or from their superannuation fund using a release authority.
Catch-up superannuation contributions
The 2018/19 income year is the first year in which individuals can carry forward unused concessional contribution limits for future use. Although a catch-up superannuation contribution is not allowed for the 2018/19 year, an individual may benefit from not making additional deductible contributions.
In order to make a catch-up superannuation contribution in the following year, an individual must have a total superannuation balance under $500,000 at 30 June 2019.
An eligible individual may delay a personal deductible contribution in 2018/19 if they expect to be under $250,000 in income in 2019/20. Therefore, a “catch-up” contribution may avoid a Div 293 liability.
A person aged 65 years or older will be able to make a contribution into superannuation of up to $300,000 from the proceeds of selling their main residence. This contribution is outside of non- concessional contribution rules.
To be eligible to make the contribution, they must have owned their main residence for at least 10 years. Also, the contribution is exempt from the age test, work test and the $1.6m total superannuation balance test.
First Home Super Saver Scheme
Voluntary contributions up to $15,000 can be made by an individual who has yet to purchase their first home into their superannuation account. The scheme allows the individual to withdraw this contribution plus earnings in order to be used for a first home deposit.
Voluntary contributions made after 1 July 2018 may be used for withdrawal in the Scheme.
A $540 tax offset is available for after-tax contributions (up to $3,000) to a complying superannuation fund on behalf of a spouse (married or de facto) where the spouse’s annual taxable income is less than $37,000. A reduction of the maximum offset is available where spouse’s income is between $37,000 and $40,000.
Superannuation government co-contribution
For low income earners, subject to certain conditions, the government makes a co-contribution of up to $500 if a taxpayer makes after-tax contributions of at least $1,000. The co-contribution begins to phase-out at a taxable income of $37,697, and is not available for taxable income above $52,697.
Individuals could also take advantage on increasing the amount that can be withdrawn under the First Home Super Saver Scheme. However, the co-contribution itself would not be included.
Insurance policies in super to become “opt-in”
Superannuation members who are inactive will need to “opt-in” with their life insurance and TPD providers from 1 July 2019 to retain their current policies.
Inactive members are individuals who have not had a contribution or roll-over into their account for 16 months. As at 1 July 2019, this will apply for accounts without a contribution or roll-over since 1 March 2018.
Subject to cash flow considerations, consider making deductible purchases by year’s end in order to accelerate deductions. This applies particularly if the income in the following year is expected to be lower than in the current year.
In certain circumstances, an immediate deduction can be available for prepaid expenditure (eg interest on a loan relating to a rental property).
A taxpayer who is considering retiring near year end may find it worthwhile to defer discretionary income until after 30 June. In that subsequent year, their income will normally be smaller and the marginal rate may therefore be less.
When considering the timing of retirement, keep in mind the restrictions on the concessional treatment of employment termination payments that apply.
Donations or gifts of $2 or more to a deductible gift recipient (DGR) are tax deductible. A deduction is also allowed for gifts of publicly-listed shares that have been held for at least 12 months and which are valued at $5,000 or less.
Donors need to be aware of the differences between the various terminologies used in crowdfunding websites to ensure they are making a correct claim. In particular, there has been an increase in crowdfunding sites during the 2018/19 income year for drought assistance.
Where spouses are on different marginal rates, consider ensuring that all deductible gifts are made by the spouse in the higher tax bracket so as to maximise the benefit of the deduction.
Online accommodation providers
Individuals that have or may be engaged in providing accommodation services through an online platform will have that data collected by the ATO. This includes Australian bank account information which may be matched to the individual’s tax file number, as well as the address of the property.
Other information to be shared with the ATO includes the number of nights booked. This information may be necessary in pro-rating any allowable deductions for the property during the income year.
Holiday home rental deductions being targeted
The ATO has also stated that an increased focus will be applied to holiday homes that are included as rental properties in income tax returns. In particular, they have identified the following circumstances where they believe a property is not genuinely available for rent:
- Advertising which limits exposure to potential tenants — eg, word of mouth, restricted socialmedia and outside holiday “high-season” periods.
- Location, condition and access to the property is poor.
- Requiring prospective tenants to provide references for short-stay periods.
- Setting the minimum stay for five or more nights but excluding weekends.
- Refusal to rent to interested people without adequate reasons.
- Setting the rent well above the rate for comparable properties in the area.
Vacant land deductions
Claiming tax deductions during a “build-to-rent” investment has been proposed to stop from 1 July 2019. This measure was announced in the 2018 federal budget, but is yet to become law.
A taxpayer may still be prudent to bring forward some payments, where possible, to claim a deduction this year. It is unconfirmed at the time of writing whether this announcement will be introduced into parliament in the future, still with the current expected start date.
Main residence exemption for foreign residents
Under a 2018 federal budget announcement, foreign residents would no longer be able to claim the CGT main residence exemption after 30 June 2019. However, at the time of writing, Treasury Laws Amendment (Reducing Pressure on Housing Affordability No. 2) Bill 2018 has not been given royal assent.
As the parliament has gone into election mode, this Bill has been prorogued. In order for it to become law, it must be re-entered into parliament by the next government.
Where appropriate, consider realising capital losses by year’s end so that they may be offset against realised capital gains of that year.
Changes to HELP repayments
Students with a HELP debt may need to start repaying the debt on earning $45,000. This lower threshold is significantly lower than previous years ($51,957 in 2017/18), and is necessary for individuals who have become non-residents.
Deferral of income
Subject to cash flow considerations and anti-avoidance rules, consider deferring income to the following year, particularly if:
- income in the following year is likely to be lower, and
- tax rates for the following year are expected to be lower.
Source: CCH iknow