Key takeaways
You'll need to estimate your taxable income for the 2023/24 financial year by tallying up all income and deducting all eligible expenses. Once you've estimated your likely taxable income for this financial year, it's worthwhile to see if you can reduce your income below the previous tax bracket, and to contemplate your taxable income for the upcoming year relative to this one.
Once you've established your objective, you can make additional concessional super contributions either through your payroll or by transferring funds from your savings into your super account. These contributions must be credited to your account by 30 June 2024.
If you anticipate that your taxable income will be higher next year, it may be beneficial to refrain from making additional concessional contributions this financial year, however, you risk losing any unused caps if you don't use them this year.
Bringing forward expense deductions into the current financial year can reduce your taxation liabilities. Consider prepaying any expenses before 30 June, and paying interest in advance for investment loans if you can.
If you identify any deficiencies, rectify them in 2024/25. Seek tax advice from your holistic accountant regarding potential optimisations for the upcoming financial year.
As we near the end of the financial year, it’s wise to reflect on how you can optimise your tax position for the 2023/24 financial year.
Below, I’ve outlined the factors we typically consider when reviewing a client’s position.
Firstly, estimate your tax position
When undertaking tax planning, the initial step involves estimating your tax position for the current financial year.
Keep in mind that this estimate requires making assumptions about certain income and deduction components because the year hasn’t finished yet.
Essentially, you’ll need to estimate the amount of taxable income you anticipate for the 2023/24 financial year by tallying up all income and deducting all eligible expenses.
If you have investments, it’s essential to estimate income, expenses, and interest income.
It’s noteworthy that interest deductions are likely to be a lot higher this year compared to previous years – thanks RBA!
Once you’ve estimated your likely taxable income for this financial year, it’s worthwhile to assess how close you are to the previous tax bracket, to see if you can reduce your income below it.
For instance, if your taxable income stands at $185,000, reducing it by $5,000 could save you 47%, resulting in a significant saving.
In addition, it’s prudent to contemplate your taxable income for the upcoming year relative to this one.
If you anticipate a lower taxable income next year, you’d likely want to bring forward as many tax deductions as possible into this year.
Alternatively, if your income is expected to be higher next year, you may want to defer deductions (such as additional super contributions) until next year.
Once you’ve established your objective, whether it’s maximising deductions for the current year or not, the next step is to explore the available options to accomplish it.
Here are some ideas…
Use concessional super contribution cap
Taxpayers can contribute up to $27,500 into their super annually and claim a personal tax deduction for these contributions.
This cap includes any contributions made by your employer on your behalf.
You can make additional concessional super contributions either through your payroll or by transferring funds from your savings into your super account.
If you choose the latter option, you’ll need to fill out a Notice of Intent to Claim a Personal Tax Deduction form and submit it to your super fund.
This form is typically available on your super fund’s website.
All super contributions must be credited to your account by 30 June 2024 for you to be able to claim a tax deduction.
Therefore, I recommend making all additional contributions before 20 June, to allow for processing times.
If your taxable income is slightly above $250,000
Div. 293 tax applies once your taxable income is $250,000 or more after adding back discretionary concessional super contributions and investment/rental losses.
This tax affects your super contributions, specifically concessional contributions, which include those made by your employer and are taxed at a flat rate of 15% by your super fund.
However, if you earn over $250,000 in a tax year (including concessional contributions), you must pay an additional 15% tax on these concessional contributions.
The bill for Div. 293 tax comes after you’ve lodged your tax return, and you can choose to pay it personally or from your super balance.
Therefore, if you anticipate your total income will exceed $250,000 this year, it’s prudent to bring it below that threshold, if possible.
For instance, if your salary was $255,000, you would be liable for Div. 293 tax.
However, if you donated $5,001 to charity, it would cost you $2,650 after-tax (after a 47% deduction) but will save you $4,125 in Div. 293 tax (being 15% of $27,500).
Therefore, you will be $1,475 better off and you have helped a charity at the same time.
Unused concessional contribution cap from 2018/19
Taxpayers have the option to carry forward any unused super concessional contribution caps from the previous five tax years if their superannuation balance was below $500,000 on 1 July.
This means that the current financial year represents the final opportunity to utilise any remaining caps from the 2018/19 financial year. It’s a “use it or lose it” scenario.
To determine if you have any unused caps, you can log into your MyGov account, provided it’s linked to the ATO.
I advise all taxpayers to check if they have any unused caps from 2018/19 and, if so, consider whether it’s beneficial to utilise them this financial year.
In other words, assess whether there’s a tax advantage to doing so.
Carry forward unused caps if your super balance is now more than $500,000
As stated above, you can only carry forward unused super concessional contribution caps from the previous five tax years if your total super balance was less than $500,000 on 1 July 2023.
If your total super balance was less than $500,000 but will surpass this limit before 30 June 2024, then this tax year is your last opportunity to use the carry forward concession.
In this case, I recommend ascertaining the value of any unused super concessional contribution caps from the previous five tax years and using them this financial year.
Don’t use the concessional cap if your income will be higher next year
If you anticipate your taxable income will be higher next year, it may be beneficial to refrain from making additional concessional contributions this financial year, allowing you to utilise them in the following year.
However, there are two important considerations to keep in mind.
Firstly, it hinges on the value of any unused caps from 2018/19, as you risk losing this cap if not used this year.
To utilise the 2018/19 cap in the current year, you must first fully use the 2023/24 cap of $27,500.
Then, any contributions exceeding $27,500 will be allocated to your 2018/19 cap.
Secondly, as mentioned earlier, if your super balance is projected to reach $500,000 or more by 1 July 2024, you won’t be able to carry forward any unused caps next year.
Is your spouse’s income low?
If your spouse’s income is less than $37,000, consider making a spousal contribution of $3,000 into their super account and you will receive a $540 tax offset.
In addition, if your spouse’s income is less than $43,445, they should make a non-concessional contribution of $1,000 to be entitled to receive a government co-contribution of $500.
Should you use the non-concessional cap this year?
The amount you can transfer from your savings into your super account is subject to limitations, known as non-concessional contributions.
If your total super balance is below $1.9 million, the annual cap this year is $110,000.
However, if it exceeds $1.9 million, the cap is reduced to nil.
In addition, if your total super balance is below $1.68 million, you have the option to bring forward up to three years of non-concessional caps into a single year.
It’s worth noting that the non-concessional cap is set to increase to $120,000 next year.
Hence, if your objective is to maximise the amount you have in your super, you could make a non-concessional contribution of $110,000 before 30 June 2024 and then make three years’ worth of contributions on 1 July 2024, totalling $360,000.
This enables you to transfer a total of over $470,000 into your super account.
If your income is between $180,000 and $190,000
It has been well publicised that income tax rates are reducing after 1 July, referred to as the Stage 3 tax cuts.
The top marginal tax rate income threshold increases from $180,000 to $190,000.
Therefore, if your taxable income is within this range, you should aim to bring forward as many tax deductions this year, as they will save you 47% for every dollar above $180,000.
Next year, that saving will be reduced to 39%.
Typically, tax deductions hold more value in the current financial year compared to the next one due to changes in tax scales that result in reduced average tax rates.
For instance, a taxpayer just in the highest tax bracket will pay 1.5% less tax.
Bringing forward expense deductions
Bringing forward tax deductions into the current financial year can assist in reducing your taxation liabilities.
To achieve this, consider prepaying any expenses before 30 June. Perhaps there are expenses you can settle in advance?
If you have repairs planned for investment properties, aim to finish, and pay for them before 30 June.
Occasionally, investors contemplate paying interest in advance for investment loans.
However, the rates for “interest in advance” loans aren’t very appealing at present, so I wouldn’t advise this unless you anticipate a significant tax saving.
Business income in a trust? Avoid the 2% Medicare levy
If your family trust receives or earns taxable income and all available beneficiaries already have a taxable income of $180,000 or higher, it might be worth considering not distributing any more taxable income from the trust.
In such a scenario, the trustee becomes responsible for paying tax on the trust’s net income when no beneficiary is presently entitled.
This income is taxed at a flat rate of 45%.
On the other hand, if you distribute this income to an individual beneficiary who is already in the highest tax bracket, they will pay 47%, including the Medicare levy.
This approach may also help you avoid the Div. 293 tax too.
Business tax planning
If you’re a self-employed business owner, it’s essential to seek advice from your holistic accountant regarding any tax planning strategies you might consider for the year.
These strategies will vary based on your business structure and operations, so it wouldn’t be suitable to outline specific options in this blog.
Administrative matters to complete prior to 30 June
If you have a family trust, it’s crucial for the trustee/s to sign distribution resolutions minutes before 30 June.
Additionally, if you make additional super contributions, I recommend you complete and submit a Notice of Intent to Claim a Personal Tax Deduction form straight away.
While this form doesn’t need to be completed before 30 June, it’s advisable to do so simultaneously with the contribution to avoid missing any tax deductions.
If you identify any deficiencies, rectify them in 2024/25
Through the tax planning process, you might uncover shortcomings or find that your tax liability is higher than anticipated.
In such instances, it’s prudent to seek tax advice from your holistic accountant regarding potential optimisations for the upcoming financial year.
Ideally, tax planning should be carried out twice a year: at the start and towards the end of the year.
