s t h g i s in
Second edition 2014
You could contribute more to super in 2014/15 Do you know that the amount you can contribute to super will change for 2014/15? In the new financial year, you will be able to make more pre-tax and after-tax contributions to super. This could mean that you can accumulate faster towards your retirement savings goals. Pre-tax contributions include superannuation guarantee or salary sacrifice contributions you choose to make as well as any personal contributions for which a tax deduction is claimed (for example, if you are self-employed). These types of contributions are called ‘concessional’ because the amount you contribute (up to your annual concessional cap) is taxed at the concessional rate of just 15 per cent compared to your marginal tax rate (except if you earn over $300,000 per annum*). After-tax contributions include personal contributions to super where you don’t claim a tax deduction. These contributions are made from income from which you have already paid tax at your marginal tax rate and counts towards your ‘Nonconcessional’ contributions cap. The Better Super legislation which was launched back in 2007 aimed to simplify the super system and encourage a greater level of engagement between Australians and their super. As a result, an annual cap on super contributions was introduced. Initially, this was $50,000 of ‘concessional contribution’ per person per year, but in the 2009/10 tax year, in a move to protect revenue, the Government halved this cap to $25,000. As would be expected, the effects were far-reaching, and very unpopular for those considering a salary sacrifice strategy in the lead up to retirement.
Hefty penalties were applied to those who exceeded both caps — up to 93 per cent on excess contributions. Since then, however, individuals and the industry have lobbied the Government to increase the cap, which has paid off, with recent legislation passed to increase the caps in certain circumstances. For the 2014/15 financial year:
For those approaching retirement, these new caps gives those who are eligible, the opportunity to build their retirement nest egg and reduce the amount of tax paid. We can assist you when you’re thinking about contributing more into your retirement savings. Speak to us today so that we can help you put plans in place to achieve your financial goals.
• If you are age 50 or over at any time in 2014/15 financial year, you will be eligible for a higher ‘concessional contribution’ cap of $35,000. This cap will not be indexed in future years. • For everyone else, the standard ‘concessional contribution’ cap will be indexed to $30,000 (up from $25,000), in line with average weekly ordinary times earnings in amounts of $5,000 and, over time, will eventually catch up with the higher $35,000 cap. • The ‘non-concessional’ contribution cap is set at six times the standard concessional contribution cap and will be $180,000 for the new financial year. If you are aged 64 or younger at any time in the 2014/15 financial year, you may be eligible to choose to bring forward the next two years of your ‘nonconcessional’ contributions to the first year in 2014/15.
In this issue... • You could contribute more to super in 2014/15 • Prepare now for end of financial year • Stay on top of your bills for a good credit rating
Additional tax of 15 per cent applies.
Prepare now for end of financial year A lot of people leave their preparation for the end of the financial year until it is too late. If you feel that your finances could do with a shake-up before June 30, there are many tax-effective strategies that we can help you implement now to ensure that the end of June runs as smoothly as possible.
Keep your receipts
Claim your uniform
Private health insurance
The most common reason why people don’t take advantage of tax deductions is simply because they don’t keep receipts. While keeping receipts for big ticket items is necessary, you don’t always need a receipt for the smaller items such as stationery and books. If the total amount you are claiming is $300 or less, you need to be able to show how you worked out your claims, but you do not need written evidence.
If you are a tradesperson or if you have to wear a uniform for work you might find the clothes or the laundry expenses are tax-deductible.
The Government made significant changes to the Medicare levy surcharge and the private health rebate from 1 July 2012. If you are currently paying the Medicare levy surcharge and want to avoid it in the future financial years, you should consider taking out private health insurance before 30 June to avoid paying the surcharge again.
A tax deductible way to manage risk Income protection insurance is an essential part of any financial plan, designed to secure your family’s lifestyle in the event of illness or injury.
Splitting income with your spouse Investing in your spouse’s name can reduce, or even eliminate, the amount of tax paid on the investment income. This is true if your partner has a lower marginal rate of tax or is earning less than $20,542 per annum1. Splitting income with your partner can be as simple as having your cash reserves (excluding your everyday bank account) in the name of the partner with the lower marginal tax rate.
Income protection insurance premiums are generally tax deductible, so if you purchase income protection insurance and pay your annual premium before 30 June 2014, you may be able to include the deduction in this year’s tax return. Business owners may also be able to claim deductions on their business insurance premiums.
Even though you might have private health insurance, you may find, based on your circumstances and income, your private health rebate has reduced this financial year ending 30 June 2014. To ensure that you understand the full impact, contact your health fund.
1 Based on 2013/14 tax scales and low income tax offset of $445 taken into account.
Salary sacrifice into super Super can be a tax-effective investment. If you’re an employee, you could look at contributing to super through salary sacrifice, thereby reducing your taxable income. In the long term, salary sacrificing has many benefits as it not only helps to increase your super savings but could also reduce the amount of tax you pay. You could even salary sacrifice your annual bonus into super, but this needs to be arranged in advance with your employer.
Additionally, the reduced salary amount that you actually take home would then become your assessable income for tax purposes. This may enable you to move down a tax bracket, reducing your amount of total tax payable. For 2013/14 a $25,000 per annum cap of super contribution applies for most people. A higher $35,000 cap applies for those people aged 60 and over during the 2013/14 financial year. You should speak to us about how this may impact your retirement planning strategy.
Speak to us today Of course, there are many other strategies we can put in place, based on your individual circumstances and financial goals. Speak to us to take the stress out of your tax planning.
Stay on top of your bills for a good credit rating As at 12 March 2014, the Australian laws for credit reporting (also known as your credit rating) have changed. This change means you will now be assessed on whether you pay your bills on time (rather than if you have occasionally paid them late). Now, more than ever, it is important to effectively manage your household finances.
What credit reporting? Credit reporting is a rating of your personal finance history. The report is used by banks, lenders or service providers to decide whether or not you are able to pay for their services reliably and what fees they should charge to cover their risk, should you fail to pay. It’s basically how a bank decides whether to approve or deny your mortgage or credit card applications.
What has changed? Previously, in Australia, we have used ‘negative’ reporting – which means the rating has been based on whether or not you have been denied credit for home loans or credit cards in the past.
Now, to be in line with the Organisation for Economic Co-operation and Development (OECD), we have started using ‘positive reporting’ – which means the rating is based on whether you have paid your bills on time. It’s probably a truer representation of how financially reliable you are, however, this means that every time you are late paying a bill, you may affect your credit rating. And most of us occasionally fail to pay a bill on time for a multitude of reasons.
To avoid a bad credit rating, make sure you pay your bills on time. A few suggestions to make this easier: • Set-up scheduled payments or direct debit to pay your regular bills. • Receive your bills via email rather than post – it’s easy to set payment reminders and create folders to keep track of your finances. • Use the calendar in your email or on your phone to remind yourself when bills are due. • Download your bank’s mobile app, so you can pay bills when you are not at home.
The problem with this approach is, given rising house prices, people are applying to borrow larger amounts and often need to apply to multiple lenders before being approved for their loan. Hence, they have accumulated negative credit points in the process.
Your RIAA Financial adviser is:
David J Earley SME Insurance Professionals 61+ 412 964 614 david@ smeinsurancepros.com.au
This document has been produced by Risk and Investment Advisors Australia (RIAA) Pty Ltd, ABN 21104922394, AFS Licence No: 238141. The advice provided in this document is General Advice Only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. If any products are detailed on this document, you should obtain a Product Disclosure Statement relating to the products and consider its contents before making any decisions.