Tax

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You’ve already probably heard this before that making additional superannuation contributions reduces your tax but what and how does it work?

Remember that saying – “hindsight is a wonderful thing” but just for once that hindsight is bought to you as a powerful and money saving (hence money making) insight.

If used wisely making the most of your superannuation contributions will be your best investment for tax purposes. Take the time and advice now because you seriously don’t want to be kicking yourself in the future.

Why are you putting it off?

  • Unfortunately, we’ve become a society of instant gratification. If we can’t have it right now, within seconds we refuse to see future benefits. That’s not only sad; it’s lazy.
  • “I’ll just focus on what’s in front of me in my business right now, right here because I just don’t have the head space or mind capacity to think too far into the future”. How is this way of thinking giving you your preferred lifestyle now and into the future? It’s just not a sustainable way of thinking.
  • “One minute the law says this, then it changes all over again – I just can’t keep up”. The most successful people in the world keep up or have a team of people who keep up for them ensuring they are always one step ahead of the game.

Here are just a few examples of how your super becomes even better:

  • Accumulating a balance on earnings on your superannuation? Pay 15% tax that will save (and make) you more money.
  • Did you know you can use your superannuation to help you buy your business premises even if you don’t have the whole amount?
  • With some conditions and if you’re over 55 years of age, you only have to pay 0% tax on earnings if you’re already drawing on a pension. Yes, 0%.

Now for the number crunching to further convince you tax planning strategy works and will increase your wealth.

Say you currently have a taxable income of $200,000.

Scenario 1 without any tax planning looks pretty painful because if you are paying tax at an individual rate you’re up for a rate of up to 47%. So that equates to $67,547 in tax owed and paid for by you. Unlike a plaster; the quicker you rip it off doesn’t make it hurt any less.

Now take a look at scenario 2, with smart tax planning, when you contribute $22,000 of that to Super before 30th June.

Your taxable amount immediately decreases to $178,000. That means in an instant your tax obligations reduce by $7,040.00. That’s not to be sniffed at and that’s what happens with smart tax planning that takes it out of your own name and places it nice and safely back into your Superannuation.

How can you do this we hear you eagerly cry?

  • You need a business
  • You need cash to deposit into your Superannuation
  • You need to do all this before 30th

A few more tips and advice to share:

  • You only pay 15% tax in Super for any contributions and tax deduction claims
  • The 15% gets paid by your super fund once your tax return is filed if you have SMSF or is taken out of your balance when you deposit if from a public super.
  • The limit if you are 48 years old or younger is $30,000 and $35,000 (through to June 30 2017), then proposed $25,000 as proposed by the new budget, if you’re 49 years and over.
  • If you’re making contributions after tax, then the limit increases a lot up to $500,000 (as per the new changes in the budget)
  • You have to have the cashflow before June 30 each year so it pays to plan so you don’t miss out
  • Each Super limit applies per person

Client communication

Federal Budget Summary

The first Budget from the Turnbull government revealed a $39.9 billion deficit for 2015/16 moving to a $37.1 billion deficit for 2016/17 and forecasting a drop to $6 billion by 2019/20.

Treasurer Scott Morrison unveiled an economic plan designed to “build a brighter, more secure future in a stronger, new economy with more jobs”. The Budget centrepiece was a 10-year enterprise plan to boost new investment, create jobs and deliver wage growth, starting with income tax concessions for small and
medium-sized enterprises.

Under proposed changes, the small business entity turnover threshold will increase from $2 million to $10 million from 1 July, 2016, seeing SMEs with an annual turnover of up to $10 million qualify for small business income tax concessions including a lower corporate tax rate of 27.5 per cent and generous equipment write-offs.

Over the next 10 years, the company tax rate will gradually fall to 25 per cent.

The Budget also revealed further investment in innovation and start-ups, initiatives to help young people into jobs and measures to combat tax avoidance.

Middle income earners were among the winners, benefiting from a modest tax cut, however, many of the super tax concessions for higher income earners will be scaled back.

 Super changes

Unlike last year’s Federal Budget which contained very few super changes, the Turnbull government announced over a dozen super changes.

They include a cap of $25,000 per year on concessional super contributions; a new lifetime cap of $500,000 on non-concessional contributions; increasing the number of people subject to a higher tax (up to 30%) on concessional contributions where income is above $250,000; and the introduction of a super transfer balance cap of $1.6 million to limit the amount of accumulated savings an individual can transfer into the tax-free retirement phase.

In line with pre-Budget speculation the government also made changes to Transition-to-Retirement (TTR) income streams by removing the current tax exemption on earnings from 1 July 2017.

Workers who have attained age 60 will still be able to draw a tax free retirement income stream while continuing to work and contribute to super.

Other changes include the abolition of anti-detriment death benefit payments (which represent a refund of a member’s lifetime super contributions tax payments) and the removal of the 10 per cent test for personal tax deductible super contributions.

Women and lower income earners

Under changes to the concessional super contributions cap, individuals with account balances under $500,000 will be able to make additional concessional contributions where they have not used up their caps in previous years.

Unused concessional amounts accrued from 1 July 2017 can be carried forward on a rolling basis for a period of 5 consecutive years.

The measures aim to give workers with relatively low account balances, as a result of broken work patterns, the ability to top up their super.

Women, who commonly take time out from paid work to care for children and are more likely to return to lower-paid, casual or part-time work, will be a key beneficiary of the catch-up scheme given they typically retire with significantly less super than men.

Women will also be key beneficiaries of a planned increase in the threshold for the Low Income Spouse Tax Offset from 1 July, 2017 to $37,000 from $10,800.

The Low Income Spouse Tax Offset provides up to $540 per annum for the contributing spouse, and is designed to boost the super balances of low income spouses, particularly women.

The Budget also featured a Low Income Super Tax Offset (LISTO) to effectively replace the Low Income Contribution Scheme (LISC).

The LISTO will reduce the tax on super contributions paid by workers who earn less than $37,000 a year by providing a tax offset to super funds from 1 July, 2017, based on the tax paid on concessional contributions up to the value of $500.

What’s next?

The vast majority of changes must be legislated and passed through Parliament before they apply. The government’s top priority is to see the proposed company tax cuts and personal income tax cuts start on 1 July, 2016, which will put pressure on Parliament to pass legislation quickly. If you think you may be negatively affected by some of the Budget’s proposed changes, you should consider seeking professional advice.

We can give you a clear understanding of where you stand and how you can manage your cashflow, super and investments in light of proposed changes. We can also ensure you’re not missing out any new benefits you may be entitled to.

Source from Fairway Financial Advice.

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Tax planning is designed to review the best tax strategies for you and whether you’re structured in the most effective way. Hold on to more of your money and develop your tax plan now.

Tax can be complicated and you want to make sure your obligations are covered. With you business tax planning service, you can be confident that your tax position is maximised!

Tax Strategies

Whether it’s deferring income to manage a tax burden or bringing forward deduction to the current year to prepay services where applicable, the right tax strategies will ensure you’re using your funds in the most tax effective way for your circumstances.

4 Steps To The Perfect Tax Plan

  1. We’ll work with you to assess the most effective business structure for you
  2. Together we’ll make sure all your records are up to date and accurate
  3. We’ll work out a tax effective plan to manage all your taxes and obligations
  4. We’ll work with you to ensure all your tax strategies are working effectively for you

What We Do

When it comes to your business tax planning we start by making sure you have the right foundation first. We review your business structure and make sure it’s the most appropriate one for you.

From there, we’ll work with you to deal with a range of taxes as well as any tax reforms and measures that might be relevant. We’ll help you implement the right strategies to maximise your tax effectiveness and make sure your money is working hard for you.

Questions

Tax planning is important to make sure you get the most out of your business performance! Take a moment to ask yourself the following questions.

  1. Is your current business structure suitable?
  2. Have you acquired or disposed of any taxable assets this year?
  3. Are your records up to date for all expenditure so that all possible deductions can be claimed?
  4. Are you investing any excess cash in a tax effective way?
  5. Are you aware of all the relevant tax reforms and measures applicable to your business?

 

Speak to McCarthy Advisory about your business tax plan today!