End-of-financial year tax and super tips for individuals

With the 2013-14 financial year quickly drawing to a close, it would be the ideal time for individuals to undertake some tax and superannuation planning for the year.

The checklist below outlines some pertinent matters to consider and provides planning tips for the 2014-15 financial year.

The list is by no means exhaustive; consult this office for specific tax and commercial advice as the situation differs according to personal circumstances.

Taxation

Dividend income

Has all dividend income been included in the individual’s assessable income upon receipt?

Have dividends received been correctly grossed-up to reflect any imputation credits attached?

Has the “resident” individual taken into account all franking credit offsets?

Is the “resident” individual entitled to a refund of any excess franking credits?

Bonus income

Can payment of bonus income be deferred until the following financial year?

Personal services income

Has the individual derived income either as a sole trade or through a business structure – i.e. a company or trust? If so, does the individual satisfy the “results” test? If no, does the individual satisfy the 80% test and one of the following:

  • unrelated clients test
  • employment test, or
  • business premises test.

Note that the personal service income rules do not apply to a “personal services business”.

Has the application of the general anti-avoidance rules been considered, notwithstanding if the entity is a personal services business?

Non-commercial losses

Has the individual incurred losses from a non-commercial business activity? If so, in some situations, tax losses may not be able to be applied against other income of the individual and should be quarantined. Consult this office for guidance on situations where non-commercial loss rules would typically not apply.

Capital allowances

Has the individual acquired depreciating assets with a cost of $300 or less? An immediate deduction may be available if the asset is being used to derive non-business income – e.g. salary and wage income.

Self-education expenses

Has the individual incurred self-education expenses that have a relevant connection to the individual’s current income-earning activities? Examples of self-education expenses include accommodation and meals if away from home overnight, student union fees, subscriptions to academic journals, purchase of equipment of technical instruments costing less than $300, depreciation of costlier assets such as computers, and course fees – consult this office for a more extensive list.

Is the taxpayer required to reduce certain allowable self-education expenses by $250? Note that certain non-deductible expenses can be offset against the $250 reduction first – e.g. travel from home to the place of education.

Prepayments

Did the individual incur non-business expenses in which:

  • the period where the expenditure relates is 12 months or less, and
  • the period ends no later than the last day of the income year following the year in which the expense was incurred.

If so, a deduction may be available for the current income year.

Donations

Have donations been made to a deductible gift recipient?

If so, are there any restrictions placed on the individual being able to claim a deduction? (e.g. the donation cannot exceed an entity’s taxable income after disregarding the donation, carry forward losses and farm management deposits)

Can the deduction be claimed over five years instead?

Work-related car expenses

Is the individual entitled to claim a deduction for work-related car expenses for use of their own “car” – typically either owned or leased – in performing their duties as an employee? Examples include, but are not limited to: carrying bulky equipment, attending conferences or meetings and travelling between two separate places of employment. If so, the individual can choose one of four methods – cents per kilometre, 12% of original value, one-third of actual expenses, or logbook – to claim work-related car expenses.

Is the car jointly owned by individuals? Special rules apply in relation to the four available methods when this is the case.

Is the vehicle a borrowed car (that is, not leased or owned by the individual)? If so, the individual can only claim the costs they actually incurred (for example, fuel costs) as a travel expense.

Tax offsets and levies

Have all relevant offsets and levies been taken into account for the individual? Common offsets and levies and other imposts to consider include:

  • dependent spouse tax offset (set to be abolished under Federal Budget measures from July 1, 2014)
  • dependent (invalid and carer) tax offset
  • senior and pensioner tax offset
  • net medical expense tax offset (due to be phased out)
  • Medicare levy
  • Medicare levy surcharge
  • private health insurance rebate, and
  • HELP-HECS debt.

Superannuation

Superannuation guarantee charge

Has the taxpayer planned for the increase in superannuation guarantee for the following financial year in the business’s expense budgets? From July 1, 2014, the superannuation guarantee rate will increase from 9.25% to 9.5%. Note the change to the schedule increasing the superannuation guarantee to 12% – it will now happen by 2022-23, as opposed to 2021-22, and compared to the Labor government’s previous goal of 2019-20.

Contributions

Has the individual monitored their contribution caps to ensure that these have not been exceeded? Note: Changes to excess contributions apply in the 2013-14 financial year and later years. Under the proposed changes, individuals can elect to release an amount of excess concessional contributions from their superannuation interests.

Note that a charge also applies to ensure that taxpayers who have concessional contributions in excess of their annual cap do not receive an advantage compared to taxpayers who have not exceeded their annual cap. Refer to concessional contributions cap in ‘Measures set to kick off on July 1, 2014’.

Does the individual satisfy the 10% rule for the financial year? Consider whether it would be beneficial to make a deductible personal contribution (again, beware of the concessional contributions cap and note that a deduction is available when the contribution is received).

Has the individual considered a superannuation salary sacrifice arrangement for 2014-15? Note that salary sacrificing is included under concessional contributions.

Is the taxpayer 64 years of age or under on July 1 of the new financial year? If so, they can apply the “bring forward” rule to make non-concessional contributions of up to $540,000 over a three-year period if this rule is triggered from July 1, 2014. Prior to July 1, 2014, the contribution cap was $450,000 over a three-year period.

Is the individual eligible for superannuation co-contributions? This is subject to income testing. Note that for contributions made in the 2013-14 financial year, the following amounts will apply:

 

If your personal super contribution is:
  $1,000 $800 $500 $200
And your income is: Your super co-contribution will be:
$33,516 or less $500 $400 $250 $100
$36,516 $400 $400 $250 $100
$39,516 $300 $300 $250 $100
$42,516 $200 $200 $200 $100
$45,516 $100 $100 $200 $100
$48,516 or more $0 $0 $0 $0