It’s hard to believe another financial year is almost done and dusted, but there’s still a last-minute chance to get savvy with your finances and keep more of your hard-earned cash to yourself.
No-one likes to be hit with a hefty tax bill come July, but this doesn’t need to be the case. By making a few changes before June 30, especially with your super, you can manage your tax situation more efficiently while at the same time boosting your retirement savings. This is because the government offers great incentives to encourage you to boost your retirement savings by potentially taxing super at a lower rate than other investments.
Here are five top tips to help you save and keep a bigger slice of income to yourself:
1. Salary sacrifice into super
By salary sacrificing some of your pre-tax salary into super, you can reduce the amount of tax you pay in the future – and boost your super balance all at once – because the contribution and earnings from it are taxed at the low rate of 15 per cent. So if you were able to salary sacrifice, let’s say, $5000 of salary into super, it could potentially grow much faster than if it was invested elsewhere. Currently, before-tax superannuation contributions (including salary sacrifice contributions) are limited to $25,000 per person per annum – before-tax contributions above this limit will not be taxed at 15 per cent and may attract an additional penalty tax.
2. Put a slice into your spouse’s super
You can make a difference to the way you and your partner build your super for retirement – and reduce your tax as well – by making spouse contributions. You can claim an 18 per cent tax offset on the first $3000 contributed on behalf of a spouse if they earn less than $10,800.
3. Get the super co-contribution
Under the co-contribution scheme, you could receive a cash boost of up to $500 to your super from the government if you contribute up to $1000 from your after-tax personal savings and earn less than $31,920 per annum. If you’re eligible, make sure you consider making a personal after-tax superannuation contribution before June 30 – there are not too many other strategies that deliver a 50 per cent guaranteed return.
4. Pre-pay expenses
If you have a geared investment, it might be worthwhile pre-paying next year’s interest to gain an immediate tax deduction. Now might also be the time to bring forward payment of any deductible expenses, including income protection premiums for the year ahead that are tax deductible. And don’t forget to claim any income protection premiums you paid for 2012-13 at tax time.
5. Income split
One of the easiest and most effective ways for couples to pay less on income and capital gains on investments is income splitting. Also, you should consider the benefits of ensuring your investments are either held evenly or in the name of the spouse who earns the least income.
Always seek professional financial advice before making any changes.