Every year as we approach June 30, you may see articles about getting your finances in order at tax time as an individual.
But it’s equally important for small business owners – whether operating as a sole trader or through a company.
And while many things remain consistent from one year to the next, this financial year things are a little different.
Firstly, some of the rules around superannuation have changed. While many of these changes were announced as far back as 2016, it is only this financial year that they have taken effect, so it’s important to be across what these changes mean. Getting this right could mean not missing out on available tax deductions (as an individual or business operator), and could also help with keeping employees engaged.
If you operate a business with employees, then as an employer you have an obligation to ensure that the superannuation guarantee (SG) of 9.5 per cent of an employee’s salary is paid into their superannuation fund in a timely manner.
For the last quarter of the current financial year, this needs to be paid by July 28, 2018 to avoid any SG charges arising.
Taking into account the timing of any SG contributions made could impact some employees, depending on their circumstances and whether they make additional contributions to their super.
For example, it’s possible they could end up with 5 quarters of SG contributions being made in one financial year, which could impact their concessional contribution cap (perhaps when combined with any additional salary sacrifice arrangements they have in place).
This is because the concessional contribution cap for each individual has now reduced to $25,000 from July 1, 2017.
For business owners and individuals alike, it’s also important to think about what contributions you may want to make to superannuation above any SG or salary sacrifice arrangements. Because of changes made to tax laws from July 1, 2017, anyone can now claim a personal tax deduction for a personal contribution made to their superannuation account.
It’s worth thinking about managing the amount contributed and claimed as a tax deduction to ensure that your total concessional contributions don’t exceed the $25,000 cap, otherwise penalties could be imposed. But there is no longer a requirement to be self-employed to be eligible for this, or meet what used to be referred to as a “10 per cent rule”.
There are real benefits to ensuring you maximise your concessional contributions, as the contributions are taxed at 15 per cent when they enter the fund (increasing to up to 30 per cent if you earn more than $250,000), and this could be lower than your personal tax rate.
As an example, a $10,000 deductible contribution would leave you with $8500 invested in superannuation, after tax of $1,500 was deducted in the fund. If your tax rate is 34.5 per cent (including the Medicare levy), the deduction saves you $3450 in personal income tax – which puts you ahead by $1950 – creating additional savings in superannuation for your future retirement.
And there’s another carrot: from July 1, 2018, provided certain conditions are met – the main one being that your total super balance is less than $500,000 – you will be able to carry forward any unused amount of your concessional contribution cap for up to five years.
So if you don’t use it all in one year, you have the opportunity to use (and claim a deduction) in a future year.
But with the ability to carry forward unused amounts not starting until July 1, 2018, it means that for this financial year, it is a case of use it or lose it.
While the benefits sound appealing, it’s important to remember there are certain steps you need to go through – in the right order and at the right time – to make financial tax strategies work for you based on your own personal circumstances and you may consider seeking professional advice.
Getting this right can make a difference both now and for your future in retirement.
The views expressed are those of the author and do not necessarily reflect those of the Westpac Group. This article is general commentary and it is not intended as financial advice and should not be relied upon as such.