2021 TAX TIPS
With the end of the financial year approaching quickly, now is the time to review what strategies you can use to minimise your tax return before 30 June 2021
14 ways to reduce your tax!
Imagine what you could do with your tax savings?
- Reduce your home loan
- Top up your super
- Save for a holiday
- 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.
Reduce your tax
While you might not be flush with cash right 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.
This means you can top up your super tax effectively, providing you don’t breach your concessional contributions cap. The super guarantee payments made by your employer, as well as any salary sacrificed contributions, are also included in your concessional contributions cap.
Effectively the amount you can pay into super through a tax deduction is the difference between those other contributions and the $25,000.
Your cap may be higher if you did not use the full amount of your cap in earlier years. This is called carry-forward or unused concessional contributions (see next tip below). You can check your available concessional contributions cap on ATO online services (accessed via myGov).
Carried forward contributions
Using unused concessional 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 contributions 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.
To use your unused cap amounts you need to meet two conditions:
1) Your super balance at the end of 30 June of the previous financial year is less than $500,000.
2) You made concessional contributions in the financial year that exceeded your general concessional contributions cap.
Did you know the government may contribute up to $500 to your super fund, if you’re a low to middle income earner, who makes an after-tax contribution to super? This is called a co-contribution.
What this means is depending on the amount of income you earn each year, the government may add to your super balance when you make a voluntary after-tax contribution. The amount you receive will depend on how much you contribute as well as your income.
You don’t need to apply for the super co-contribution. When you lodge your tax return the ATO will work out if you’re eligible. If the super fund has your tax file number the ATO will pay it to your super account automatically.
Spouse super contributions
Grow their retirement savings
If your spouse is a low or no-income earner, you can contribute money to their superannuation account. Making a contribution to their super can be an effective way to grow their retirement savings, while reducing your tax.
If you make after-tax contributions to your spouse’s super and they earn less than $40,000 a year, you may be able to claim a tax offset of up to $540.
Under the 2020-21 tax rules, on the first $3,000 you pay into your spouse’s superannuation account as an after-tax contribution, you may be able to claim up to 18%. You don’t receive the spouse contribution tax offset for payments above $3,000.
Property depreciation report
If you have an investment property, a Property Depreciation Report (prepared by a quantity surveyor) will allow you to claim depreciation and capital works deductions on capital items within the property and on the property itself.
When a building gets older and items wear out, they depreciate in value. The ATO governs legislation that allows an owner of any income producing property to claim a tax deduction for this wear and tear.
The cost of this report is generally recouped several times over by the tax savings in the first year of property ownership. The report lays out the exact amount of tax deductions for depreciation that you are entitled to claim. Your accountant will use it year after year to ensure you’re claiming all the deductions that you’re entitled to.
- You must have spent the money yourself and weren’t reimbursed
- It must directly relate to earning your income
- You must have a record to prove it.
You can use a capital loss to:
- Reduce capital gains made in the year the loss occurs, or
- Carry forward the loss to offset future capital gains.
You can’t deduct a net capital loss directly from your income. But you can carry it forward and deduct if from capital gains in later income years.
There is no limit on how long you can carry forward a net capital loss. You must offset your capital losses against your capital gains in the order in which you made them. You can’t choose not to offset capital losses against capital gains if you have them, but you can choose which capital to deduct your losses from.
Defer investment income & capital gains
If practical and/or beneficial, arrange for the receipt of Investment Income (e.g. interest on term deposits) and the Contract Date for the sale of Capital Gains assets to occur AFTER 30 June 2021. The Contract Date (not the Settlement Date) is generally the key date for working out when a sale or purchase occurred.
Sacrifice your salary to super
Boost your super
If your annual income is $45,000 or more, salary sacrifice can be a great way to boost your superannuation and pay less tax. By putting pre-tax salary into super rather than having it taxed as normal income at your marginal rate you may save tax. This can be especially beneficial for employees nearing their retirement age.
If you are looking to boost your retirement savings or buy your first home, salary sacrificing into super could be an option to think about.
Prepay expenses and interest
Interest in advance
Expenses relating to investment activities can be prepaid before 30 June. You can prepay up to 12 months before 30 June on a loan for property or share investment and claim this financial year.
One strategy available is prepaying interest. This is known as interest in advance. Interest in advance is – fixing the interest rate on an investment loan at a discounted rate for 12 months and paying the interest normally incurred throughout the year in one upfront interest payment.
Also other expenses in relation to your investment can be prepaid before 30 June. This includes rental property repairs, memberships, subscriptions, and journals.