Start planning now for the next financial year

18 June 2013

Australians need to rethink their approach to the end of the financial year and plan not only for this year’s tax return but their financial future from 1 July.

According to NAB, many people work towards a deadline of 30 June without focusing on what they need to do to ensure their finances are in top shape for the next financial year.

Gemma Dale, Head of Technical Services at MLC & NAB Wealth, said: “End of Financial Year (EOFY) is traditionally a reactive time and while it’s great to see people taking control of their finances before 30 June, the key to good financial management is to think of EOFY as more of a transition point than a line in the sand. It’s just as important to think about what you need to do from 1 July as it is before 30 June.”

NAB’s top tips to prepare for this financial year and beyond:

1. Avoid Withholding Tax by providing your Tax File Number

It’s not compulsory for you to provide your Tax File Number (TFN) when you open a bank account. But if your bank doesn’t have it recorded, Withholding Tax (WHT) may apply to interest earned on your accounts at tax time. WHT is 46.5%, which is calculated using the top marginal tax rate of 45% plus the 1.5% Medicare levy. If you’re a non-resident, the WHT rate is 10%. Providing your TFN to your financial institution can also make it easier to complete your tax return online as some fields will be able to be pre filled for you. NAB customers can update their TFN in a branch or through Internet Banking.

2. Use tax time to grow your super

Contributions made from your pre-tax salary, known as salary sacrifice, and certain personal contributions can be claimed as a tax deduction. These contributions are made with pre-tax dollars and are taxed in the fund at a maximum rate of 15%. “This concessional tax rate may be considerably lower than the marginal rate of up to 46.5% you pay on your salary and other taxable income,” Ms Dale said. For the first time, MLC customers can make their super contributions during the last week of June at select NAB branches in capital cities.

3. But beware the caps

As tax effective as super may be, there is a maximum amount people can contribute each year without incurring additional tax. This financial year, the cap is $25,000 for all age groups although the government plans to increase the cap for people aged 59 and over to $35,000 from 1 July. If the cap is breached, an additional 31.5% tax is paid on the excess amount. Employees making additional contributions may also have to be more vigilant next year as the minimum amount employers have to pay into super is rising from 9% to 9.25% of an employee’s salary from 1 July. Your financial planner can help you work out your position in relation to the cap.

4. Get a super top-up from the government

If your income is less than $46,920 and you make a personal contribution of up to $1,000, the government may add up to $500 to your super account. “This is known as a government co-contribution,” said Ms Dale, “and it can make a big difference to your super if you take advantage of this benefit year after year.”

5. Manage capital gains tax

If you have made a capital gain on the sale of an asset this financial year, you could consider offsetting this by selling other assets where a capital loss would result or making a tax deductible super contribution. “You can use the deduction and/or the capital loss to offset some or all of your capital gain,” said Ms Dale. “Alternatively, if you are thinking of selling a profitable asset, you may want to put it off until after 30 June as this will give you another year to implement strategies to manage your tax bill.”

6. Especially if you have an SMSF

Peter Hogan, National Manager of SMSF Advice, said self-managed super fund (SMSF) trustees should review the performance of their fund during June and do some capital gains tax planning if necessary. “If the fund has not started a pension, tax is payable on realised gains at a maximum rate of 15%,” said Mr Hogan. “Further, if the investment has been held for more than 12 months, only two thirds of the gain is taxable. To reduce any taxable gains your fund makes this financial year, you may want to sell some other investments that are trading at a loss before 30 June.” If fund investments are being used to pay a pension, then no tax is usually payable on capital gains or other investment income.

7. Remember your key SMSF year-end requirements

SMSF trustees are responsible for meeting a range of year-end obligations, according to Mr Hogan, such as determining the market value of the fund’s assets as at 30 June each year and including these values in the fund’s annual accounts and statements or ensuring the funds ‘in-house assets’ don’t exceed 5% of the total fund assets. Mr Hogan said: “If SMSF trustees don’t meet their obligations, they face penalties, which will vary depending on the type and seriousness of the contravention. They should also use the time before 30 June to review the key changes taking place next year that may impact their fund’s strategies.”

8. Bring forward your deductions

Another way to manage your tax bill this year is to pre-pay certain expenses that are tax deductible before 30 June. Common examples include paying up to 12 months’ income protection insurance premiums or up to 12 months’ interest on a fixed-rate investment loan.

9. Protect yourself

If you have life and/or total and permanent disability insurance in your super fund, you may be able to take advantage of some tax concessions not available when insuring outside super. These concessions can make the insurance more affordable and free up cash flow for other purposes.

10. Conduct a personal finance health check

Make EOFY your annual reminder to conduct a personal finance health check to ensure the products you use are still suitable for your needs. When you’re planning a trip to the accountant, also schedule a visit to your local bank branch to review your home loan, credit cards and insurance arrangements. NAB customers can also ask in branch about how best to maximise their budget and savings plan using NAB’s online Money Tracker.

Media Contacts

Catherine Woods M: +61 (0) 477 320 333