Giving yourself the best chance

People are tired of the annual tax scramble at the end of every financial year – wracking your brain, searching your memory and sifting through files to identify deductions, concessions and declarable elements at the last minute can not only be stressful but also inefficient.

While capitalising on this hard work would be ideal the reality is, we get caught up in our day-to-day lives and it is left too late in the financial year to be able to do anything about it. Now is the time to consider any taxation and accounting strategies so that the implementation process approaching the end of this financial year is as smooth as possible.

Here are a few simple steps to restructure your financial position and capitalise on any opportunities available to you. We recommend taking action on these items now:

Debt optimisation

You need to deploy a good chunk of funds towards paying down your non-deductible debt as it is much more expensive than deductible debt. Over a period of time, this will complement your financial strategy(ies) pretty well and should put you in a position to maximise your wealth.

Mortgages

Low interest rates provide an opportunity to maximise your cash flow and further push your debt optimisation strategy. It is a good time to consider refinancing your mortgage. The key benefit to this strategy is that it can unlock funds and improve cash flow, enabling you the freedom to pay down your non-deductible debt and look at other investment opportunities to bolster your portfolio.

Investments

Having the ability to invest is great but careful attention must be paid to the type of investment you are considering and how it impacts your overall position. What is the net return on your rental property? What is the market outlook? Can it be improved? Or is it simply time to consider other alternatives? Consider CGT impact before taking any action.

Gaining an understanding of the tax implications of each investment in your portfolio is imperative as some types of investment will allow a very handy CGT discount whereas other do not. This is where your investments need to be structured appropriately to ensure that you derive the maximum benefit out of your investments and minimise any tax where possible.

Superannuation

It pays to keep tabs on your super fund, be it a retail/industry fund or a self-managed super fund (SMSF). A raft of new measures introduced by the government earlier this year will require you to analyse your current strategies in line with your objectives.

Before setting up a SMSF, you need to consider if it is right for you, the minimum balance required and, more importantly, how this will assist you in achieving your financial and non-financial objectives. A SMSF is a fantastic way to exercise control over and diversify your investments. This may be of particular interest to those who wish to buy a property through their fund.

Insurance

An improper or poorly structured insurance profile presents a significant risk and could be a hole in the bucket of your finances. Indeed, it can have a profound effect on your livelihood. For this reason, we recommend a review of your insurance policies and discerning whether or not it is structured in a way that suits and supports both you and your financial plans.

For every policy, ask yourself: is this policy and the level of cover appropriate for my circumstances? Does the benefit amount accurately reflect my current circumstances?

Your financial plan is not all about numbers, it is much more than that – it is about managing your current and future lifestyle, keeping up with the changes and the protection / preservation of your assets for future generations. Having time on your side is a definite advantage as it allows you to identify opportunities then plan and structure appropriately.

By acting now, you give yourself the best chance at achieving your goals for this year and beyond. Don’t forget that we are not just a resource at the end of the financial year – we are here to help you in your wealth creation and management strategies year-round.


Restructuring your tax position

For property sales exchanged on or after 1 July 2018, those over the age of 65 looking to downsize will be able to deposit up to $300,000 into their super from the proceeds of selling a home owned for 10 or more years. To qualify, the dwelling must have served as a primary residence and have been eligible for CGT for at least part of that time.

Why deposit funds into super? It’s simple because the earnings on these funds may be tax-free whereas if the funds are invested in your personal name the earnings may have tax implications. This is especially convenient for those looking for flexibility, as even if the maximum $300k or $600k (for a couple) downsizing contribution is made, that cash is still accessible when and if required.

Furthermore, downsizer contributions are excluded from being treated as a non-concessional contribution thereby allowing plenty of scope to strategise for your non-concessional contributions cap. More importantly, this may allow you to structure your estate planning so that your nominated beneficiaries receive your superannuation interest tax free.

Key considerations:

  • Contributions must be made within 90 days of settlement.
  • You must make a choice to treat the contributions as downsizer contributions. The choice must be made in an approved form and given to your super fund at or before the time the contribution is made.
  • Contribution must be in respect of an individual aged 65 years or over.
  • The individual or their spouse must have owned the dwelling for at least a 10-year period just prior to disposing of it.
  • Downsizer contributions may impact on your age pension benefits.

For those who hold property as part of their investment portfolio, the Government’s new measures will now mean that:

  • Travel to inspect your investment property is no longer deductible.
  • Depreciation claims have been restricted so that new investors will no longer be able to claim for depreciation of assets purchased by a previous owner of the property.

Staying super smart

Along with other reforms aimed at investment properties, there are some new regulations regarding limited recourse borrowing arrangements (LRBA) within SMSFs. Put simply an LRBA is a loan to a super fund for the purpose of acquiring an asset, for example, a property.

Moving forward, total super balance of an individual is an important concept, as it will affect your ability to make non-concessional contributions (NCCs) into super. Under the new legislation, in order to be eligible to make NCCs, the individual’s total super balance for the previous income year must be less than the balance cap (ie. $1.6 million).

The government proposed to amend the definition of the total super balance as outlined in s307-230 of the Income Tax Assessments Act 1997, whereby for a fund that has entered into an LRBA the outstanding balance of such a borrowing would generally be reflected in the total super balance of fund members. This measure is yet to be passed, however, this is a critical measure that we will be keeping a close eye on and keeping you up-to-date, as it has numerous implications for funds wanting to pursue investment strategies that utilise LRBAs.


Ready to assist

Chetan Sharma

Taxation and accounting forms an integral part of any sound financial plan and we’re here to support you and all your wealth creation and management needs. For a full run down of how the reforms will impact you specifically, or for help restructuring your finances in anticipation of the end of this financial year, give us a call on (02) 9997 4647 to arrange an appointment today.








Contact: Financial Decisions PO Box 484 Mona Vale NSW 1660, T 02 9997 4647, F 02 9997 7407