The end of the 2020-21 financial year is close at hand, with 30 June on the horizon.

Please consider a review of your existing personal finances, and see if there is anything you can do between now and then that could benefit your financial situation, goals and objectives.

Below are several EOFY planning tips you may find helpful, regardless of your stage of life—wealth accumulator, pre-retiree or retiree. However, before taking any action, it’s vital to assess your eligibility (if applicable), and the appropriateness of these tips in relation to your circumstances.

EOFY planning tips for the 2020-21 financial year

Bringing forward your deductible expenses and prepaying your deductible investment loan interest

• If appropriate, consider bringing forward any deductible expenses. This could include income protection insurance premiums, repairs and maintenance to investment properties (i.e. rented out or available/advertised for rent), work-related expenses (eg clothing expenses, home office expenses, and certain self-education expenses), and donations to deductible gift recipient organisations.
• If appropriate, consider prepaying any deductible investment loan interest. This could include interest payments on an investment loan for either an investment property or an investment portfolio you hold.

By bringing forward your deductible expenses and prepaying your deductible investment loan interest, you could help reduce your personal income tax for this financial year. This could also be of benefit if, for example, you expect that your income will be lower in future financial years when compared to this financial year.

Please click here for information on one of the most common deductible expenses, work-related expenses.

Purchasing private health insurance

• If appropriate, consider purchasing private health insurance to reduce your Medicare Levy Surcharge (MLS) for the period of cover. And, depending on your circumstances, your insurer may have the option to offer you an age-based discount, or you could avoid, or reduce, the impact of the lifetime health insurance cover loading.

*The thresholds for families increase by $1,500 for each MLS dependent child after the first.

*If you have a couple or family private health insurance hospital cover policy, your discount is calculated as an average between the individual discount of the two adults. In addition, when you turn 41, the discount is gradually phased out, reducing by 2% each year.

In terms of the lifetime health insurance cover loading, If you don’t have hospital cover on your lifetime health cover base day and then decide to purchase hospital cover later on in life, you’ll pay a 2% loading on top of your hospital cover premium for every year you are aged over 30, based on your age on the 1 July before joining.

Please note: The maximum lifetime health insurance cover loading is 70%. In addition, increased hospital cover premiums due to lifetime health insurance cover loading stop after 10 years of continuous hospital cover.

Please click here for information on private health insurance and the MLS.

Managing capital gains and losses on your assets

When it comes to the sale of an asset that triggers a capital gain or capital loss, please consider your overall investment strategy when making any decisions. With this being said, below are several important points regarding the management of capital gains and capital losses on your assets from a tax planning perspective.

• If appropriate, consider deferring the sale of an asset with an expected capital gain (and applicable capital gains tax liability) until it has been held for 12 months or longer. By doing so, you could help reduce your personal income tax, for example, if you hold an asset for under 12 months, any capital gain made may be assessed in its entirety upon the sale of that asset.

*A capital gain will be assessable in the financial year that it’s crystallised.

• If appropriate, consider deferring the sale of an asset with an expected capital gain (and applicable capital gains tax liability) to a future financial year. By doing so, you could help reduce your personal income tax for this financial year. This could also be of benefit if, for example, you expect that your income will be lower in future financial years when compared to this financial year.
• If appropriate, consider offsetting a crystalised capital gain with an existing capital loss (carried forward or otherwise) or bringing forward the sale of an asset currently sitting at a loss. By doing so, you could help reduce your personal income tax for this financial year. Please note: A capital loss can only be used to offset a capital gain.

Please click here for information on capital gains and capital losses, and capital gains tax.

Contributing to your super fund

• If eligible and appropriate, consider making the most of your 2020-21 financial year annual concessional contributions cap with a concessional contribution. Note that other contributions such as employer Superannuation Guarantee and salary sacrifice contributions will have already used part of your concessional contributions cap. If your total super balance last 30 June was less than $500,000 you may be in a position to carry-forward unused concessional caps starting from the 2018-19 financial year. By making a concessional contribution to your super, you could help reduce your personal income tax for this financial year and provide for your future retirement.

*A concessional contribution generally refers to a contribution that can be claimed as a tax deduction by the contributor, eg employer contributions (including salary sacrifice), and personal deductible contributions.

^The concessional contributions cap amount per annum will increase to $27,500 from the 2021-22 financial year.

Please click here for information on the eligibility requirements for concessional contributions. In addition, you may wish to read our article on the indexation of the contributions caps for the coming 2021-22 financial year.

• If eligible and appropriate, consider utilising all or part of your 2020-21 financial year annual non-concessional contributions cap by making a non-concessional contribution. If you are not currently in a non-concessional contributions bring forward period, consider whether you may be in a position to ‘bring-forward’ your non-concessional contributions caps for the 2021-22 and 2022-23 financial years, and contribute up to $300,000 for the 2020-21 financial year. By making a non-concessional contribution to your super, you could help provide for your retirement in the future—and, in the process, you may be entitled to receive the Government co-contribution (up to $500).

*A non-concessional contribution generally refers to an after-tax contribution that isn’t (or can’t be) claimed as a tax deduction by the contributor, eg personal contributions not claimed as a tax deduction and spouse contributions (for the recipient).

*For the 2020-21 financial year, the Government co-contribution matching rate is 50% of the eligible non-concessional contributions that you make. Please note: The maximum Government co-contribution that you can receive is $500, which gradually phases out by 3.333 cents per dollar over the lower-income threshold.

Please click here for information on the eligibility requirements for non-concessional contributions, and also in relation to the Government co-contribution. In addition, you may wish to read our article on the indexation of the contributions caps for the coming 2021-22 financial year.

Boosting your spouse’s super fund

1. If eligible and appropriate, consider splitting some or all of your concessional contributions for the 2019-20 financial year with your spouse. Please note: The maximum amount that you can split with your spouse is the lesser of: 85%* of your concessional contributions made in the financial year; or your concessional contributions cap for the financial year, including any unused concessional contribution cap carried forward from previous financial years starting from 2018-19. By splitting your concessional contributions with your spouse, you could help provide for both yours and your spouse’s retirement in the future.

Please click here for information on the eligibility requirements for contribution splitting. In addition, and especially when considering the transfer balance cap, you may wish to read our article on building super together with spouse contributions.

• If eligible and appropriate, consider making a non-concessional contribution to your spouse’s super. By making a non-concessional contribution to your spouse’s super, you could help provide for both yours and your spouse’s retirement in the future—and, in the process, you may be entitled to receive the spouse contribution tax offset (up to $540), which could help reduce your personal income tax for this financial year.

*The spouse contribution tax offset is 18% of the lesser of: $3,000 reduced by $1 per $1 of your spouse’s income above $37,000; or, your contribution. Your spouse’s income is their assessable income (disregarding your spouse’s FHSS released amount) plus reportable fringe benefits and reportable employer super contributions.

Please click here for information on the eligibility requirements for making a spouse contribution, and also in relation to the spouse contributions tax offset. In addition, you may wish to read our article on the building super together with spouse contributions, especially when considering the transfer balance cap.

Meeting your super income stream obligations

When it comes to the commencement of a super income stream, such as an account-based pension, it’s important to understand that there are certain obligations that need to be adhered to. For example, there are minimum annual pension (income) payment amount requirements.

*For the 2019-20 and 2020-21 financial years, there has been a temporary 50% reduction in the minimum annual pension payment amount requirements due to the impact of the COVID-19 pandemic. Please note: Lump sum withdrawals don’t count towards this minimal annual income payment amount. A pension payment for a super income stream must be received at least once per financial year (except for the first financial year, if you commence the super income stream in June).

Please click here for information on the minimum annual pension payment amount requirements. In addition, in terms of other obligations, if you run your own self-managed super fund (SMSF), you may wish to watch our animation, an EOFY checklist for SMSFs, which provides other important points on EOFY.

After reading this article, you may also find of interest the following:

• Tax offsets (or rebates)
• The Personal Income Tax Plan
• Eligibility to contribute to super
• Indexation of contributions caps
• Preparing for tax time checklist
• Making the most of a tax refund

If you have any questions regarding this article, please contact us.