Bob Deutsch, the Senior Tax Council at the Tax Institute, shares his tax tips for the end of financial year, and changes you might not have known of
Introduction – Tax tips for the end of the financial year
Ross Greenwood: Great to have your company here in on work-life-money. Now, June 30 is approaching fast and that means that there are changes. Some of them announced in the recent federal budget, but others should have quite a long time coming. But no matter what those changes are they’re going to affect a whole lot of working people, people who are retired and just generally people who need to understand what’s taking place with their tax.
I thought what we would do today is get the Senior Counselor at the Tax Institute, Bob Deutsch. He’s right across all of this stuff to try and give you a bit of a check list coming into June 30 when it comes to tax, but also some of the strategies that you might have been thinking about employing before June 30 this year. Remember you haven’t got that long to go, so Bob many thanks for your time as always.
Bob Deutsch: Pleasure Ralph, great to be with you.
Ross Greenwood: Let’s go through some of the bits and pieces that you affect working people and others besides, what do you reckon– what do you think is the most important change that happens from July 1 this year?
Bob Deutsch: The most important and the most complex area is superannuation, but there’s other areas as well but the super area has many changes of which I’ve isolated the best half a dozen that I think are important for people to understand. I might just run through them very quickly and then we could talk about them in more detail if you like. Obviously, contributions in the superannuation are changing dramatically as of 1 July. Up until 1 July 2017 you have the opportunity to put in after-tax contributions of $190,000 per year but if you haven’t in any contributions beforehand you can put in up to 540,000 up until the 30th of June.
Ross Greenwood: Yes, you can put in three years contribution from after-tax saving in the country. That’s the important thing. That’s going to be kept to a hundred thousand dollars after July 1 which means if you bought your three years in, that’s reduced from 540,000 down to $300,000. The reason why that’s important is if you put into some sort of pension phase then the tax on the income is zero. That’s the reason why that’s so important.
Bob Deutsch: That’s right and especially because it’s going to be a much lower threshold. A much lower limit that you can put in after 30 June. Equally with pre-tax contributions, what we call conscentional contributions, have until there’s also a reduction there. At the moment you can put in up to 35,000 or 30,000 depending on your age. After 30 June, it’s restricted to 25,000 for everybody.
If you haven’t put in any pre-tax contributions up until now, you up to until 30 June to put in either 30,000 or 35,000. That’s again another important change that’s going to happen. Not as important as the first one because the numbers are smaller, but it’s nonetheless an important change.
Ross Greenwood: Okay, so another aspect of this, that’s the super. There’s a range of other bits and pieces but that’s the key phase of super. When it comes for personal income tax that also changes from July 1 this year as well, doesn’t it?
Bob Deutsch: Certainly it does. There is a change in the rates, so obviously that’s going to be relevant if you can defer income past the 30th of June that can you help you both because of the deferral in the slight reduction in tax rate that will apply after 30 June. That’s an important benefit for deferring income. You can also try to accelerate reductions so we can pre-pay an expense bring it in the current year to try and pay before the 30th of June so that it counts for the current years you didn’t get an earlier benefit and that’s also at a higher rate that you’re getting that benefit.
Ross Greenwood: A couple of examples would be say for example, you’re paying interest on the investment property, you can pay 13 months of that interest in advance and get the tax reduction instantly and this tax year if you have tax deductible, education expenses, or training expenses, you can pay them in advance and make a tax deductible in this financial year. Just explain one other thing also. You talked about the income tax relief, but what’s going to happen is the marginal tax of 37 cents in a dollar is going to start at $87,000 rather than $80,000. That’s partly where the tax cut come, isn’t it?
Bob Deutsch: That is. There’s that element that’s also the elimination of the temporary budget levy as they called it, that extra two percent. It’s both that change that you’ve referred to but there’s also a change at the upper end where you’re above $190,000. Both of those changes will have a material impact on tax up to 30 June and compared to post 30 June.
Ross Greenwood: Okay, there’s a few other bits and pieces. The government, say example, for small businesses has extended the small business concessions. Haven’t they?
Bob Deutsch: They have, another 12 months for the $20,000 write off as they call it. Important that if you want the write off in the current year you have to have expended the money by 30th of June 2017. Now that’s a caveat that I put on all this tax planning initiatives. You got to be very careful about your timing. If I just touch on the super again, the super contribution to count for the current year has to be made by the 30th of June. The important thing to understand there is that it actually relates to receipt by the super fund.
Ross Greenwood: It’s going to be money in the bank. It can’t be that you actually deposited on that day because it might take two or three days to get there. You’ve actually got to have it, make sure it’s in the account well before the 30th of June.
Bob Deutsch: Yes, I would not recommend to people if they’re looking for the start of tax planning to leave it until the 30th of June this year that happens to be a Friday. Unlikely if you put money into a large retail super fund on the 30th of June that it’s actually going to hit the super fund account on that day. Very unlikely.
Ross Greenwood: Yes, that’s exactly right.
Bob Deutsch: That’s going to be a problem.
Ross Greenwood: Let’s get back to the small businesses for a month the $20,000 instant asset write off, so you can buy an asset worth up to $20,000 and you get the tax reduction in full this year, you don’t have to depreciate it but then there’s a second thing is well the small businesses in the past that qualified for that had turn overs of up to $2 million a year. The government has increased that to companies that have got turn overs of up to $10 million a year.
Bob Deutsch: That’s right. A fivefold increase. It’s going to bring in a lot more companies previously didn’t get that benefit or a lot more small businesses i should say that didn’t get that benefit will now be eligible for that benefit provided that the expenditure’s been incurred by the 30th of June.
Ross Greenwood: Okay, anything else that stands out to you that really is going to have a huge impact coming into June 30 this year?
Bob Deutsch: Well. It’s always a repetitive thing. The capital gains thing tax, people need to understand that if you exchange contracts before 30 June, on or before 30 June, that capital gain will be in the current tax year. If you’ve got an asset which is showing a substantial capital gain, try to defer it at this stage, the exchange of contract until after 30 June will give you an extra year to pay the tax and it will also be at a slightly reduced rate that we talked about earlier.
Ross Greenwood: Certainly but there’s a bit of distext planning around the place. It is actually planning that really what it’s about isn’t it? Understanding and planning it.
Bob Deutsch: It is important that it is planning, it’s not avoiding or evading tax. You’re just planning using the system as it stands. I just mentioned another thing, if you’ve got capital losses on the assets this current year, there’s to exchange contracts on or before 30 June, you bring that loss into the current tax year if you want it in the current tax year and most people would.
Ross Greenwood: That’s exactly right. In other words, if you’ve got losses and you’ve got something else you’re going to make a profit on, you’ve actually try and match them up in the current year and as a result reduces the amount of capital gains that you might otherwise pay. I’ll tell you what, great to have you on the program Bob. These things as you say, everything you have spoken about thoroughly legal, it is text planning, it is absolutely legitimate. It is when you start a bit more creative, that’s when you might score the other side of law and you’ve got to be very careful. In the meantime, the senior counsel at the tax institute is great with his time, Bob Deutch. Bob, we appreciate it today.
Bob Deutsch: Thank you so much Ralph.