Minimise Your Personal Tax – 2021 Tax Planning Guide
Now’s the time to review what strategies you can use to minimise your tax before 30 June 2021.
Imagine what you could do with tax saved?
- Reduce your home loan
- Top up your super
- Save for a holiday (when we can travel again)
- Deposit for an Investment Property
- Pay for your children’s education
- 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.
Home Office Expenses During Covid-19
If you have been working from home due to COVID-19, you may have expenses you can claim a tax deduction for. The ATO allows you to claim using a “Shortcut Method” an amount of $0.80 per work hour for the 2021 year. This amount covers all expenses from working from home, and you need to keep a record of how you calculated the number of hours you are claiming.
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. Individuals need to pass a work test if over age 67.
To save tax, consider making the maximum tax deductible super contribution this year before 30 June 2021. 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%.
Carried Forward Contributions
Carry-forward contributions are not a new type of contribution, they are simply new rules that allow super fund members to use any of their unused concessional contributions cap on a rolling basis for five years.
This means if you don’t use the full amount of your concessional contribution cap ($25,000 in 2019, 2020 and 2021), you can carry-forward the unused amount and take advantage of it up to five years later.
Carry-forward contributions are calculated on a rolling basis over five years, but any amount not used after five years expires. These carry-forward rules only relate to concessional contributions into super, not non-concessional contributions, as they have different caps.
Spouse Super Contributions
You can make super contributions on behalf of your spouse (married or de facto), provided you meet eligibility criteria and your super fund allows it. This is known as contribution splitting.
Doing this not only helps to boost your spouse’s retirement savings, it can also help you save tax if your spouse has limited income.
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.
Additional Tax On Super Contributions by High Income Earners
The income threshold at which the additional 15% (‘Division 293’) tax is payable on super $250,000 p.a. Where you are required to pay this additional tax, 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
In 2021, the maximum co-contribution is available if you contribute $1,000 and earn $39,837 or less. A lower amount may be received if you contribute less than $1,000 and/or earn between $39,837 and $54,837.
OWNERSHIP OF INVESTMENTS
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.
PROPERTY DEPRECIATION REPORT
The cost of this report is generally recouped several times over by the tax savings in the first year of property ownership.
MOTOR VEHICLE LOG BOOK
An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.
SACRIFICE YOUR SALARY TO SUPER
PREPAY EXPENSES AND INTEREST
WORK RELATED EXPENSES
REALISE CAPITAL LOSSES
DEFER INVESTMENT INCOME & CAPITAL GAINS
The Contract Date (not the Settlement Date) is generally the key date for working out when a sale or purchase occurred.
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