2018 planning opportunities for individuals
As 30 June 2018 is fast approaching, we would like to advise you of some key tax planning opportunities you may want to take advantage of before the end of the financial year.
Deferral of income
Subject to cash flow considerations and anti-avoidance rules, consider deferring income to the following year, particularly if:
• income in the following year is likely to be lower, and
• tax rates for the following year are expected to be lower.
Where appropriate, consider realising capital losses by year's end so that they may be offset against realised capital gains of that year.
Donations or gifts of $2 or more to a deductible gift recipient (DGR) are tax deductible. A deduction is also allowed for gifts of publicly-listed shares that have been held for at least 12 months and which are valued at $5,000 or less.
Where spouses are on different marginal rates, consider ensuring that all deductible gifts are made by the spouse in the higher tax bracket so as to maximise the benefit of the deduction.
Subject to cash flow considerations, consider making deductible purchases by year's end in order to accelerate deductions. This applies particularly if the income in the following year is expected to be lower than in the current year.
In certain circumstances, an immediate deduction can be available for prepaid expenditure (eg interest on a loan relating to a rental property).
Personal super contributions
From 1 July 2017, an individual is able to make a personal deductible superannuation contribution regardless of whether they are self-employed or not. Individuals at a lower tax rate would need to make sure what contributions they can make before claiming a deduction. They can review their superannuation accounts to see their employer contributions to date.
Individuals need to be reminded that the concessional contributions cap is $25,000 for the 2018 financial year.
Additionally, individuals earning over $250,000 in taxable income need to be aware that Division 293 tax will apply to concessional superannuation contributions.
Spouse superannuation contribution rebate
A $540 tax offset is available for after-tax contributions (up to $3,000) to a complying superannuation fund on behalf of a spouse (married or de facto) where the spouse's annual taxable income is less than $37,000. A reduction of the maximum offset is available where spouse's income is between $37,000 and $40,000.
Superannuation government co-contribution
For low income earners, subject to certain conditions, the government makes a co-contribution of up to $500 if a taxpayer makes after-tax contributions of at least $1,000. The co-contribution begins to phase-out at a taxable income of $36,813, and is not available for taxable income above $51,813.
Individuals could also take advantage on increasing the amount that can be withdrawn under the First Home Super Saver Scheme. However, the co-contribution itself would not be included.
Proposed changes to HELP repayments
The MYEFO report from December 2017 announced that new HELP repayments level may exist from 1 July 2018. As a result, students with a HELP debt may need to start repaying the debt on earning $45,000. Delaying some deductions where appropriate may remove the repayment in the next financial year.
A taxpayer who is considering retiring near year end may find it worthwhile to defer discretionary income until after 30 June. In that subsequent year, their income will normally be smaller and the marginal rate may therefore be less.
When considering the timing of retirement, keep in mind the restrictions on the concessional treatment of employment termination payments that apply.
Property development and vacant land deductions denial
Using lead-time rules for non-commercial losses, as well as property development interest deductions, may only be available for this and next financial year. An announcement to remove these deductions from 1 July 2019 was announced in the Federal Budget. The proposal will also remove these interest amounts from the cost base of the asset.
Therefore, property development clients may need to act quickly to get their operations started.
Additional CGT discount available for investors
An additional CGT discount of up to 10% is now available for investors who invest in affordable housing from 1 January 2018. Conditions apply to get the additional discount, including holding the asset in affordable housing for three years.
Information sourced using CCH iknow