I was an actuary before I became a famous author.  My former profession is the butt of many cruel jokes.  For example:  A marketer, an accountant, a mathematician and an actuary are asked the question, “What’s two plus two?”.  The marketer says “22”.  The accountant says, “4.00”.  The mathematician says, “Four, and I have the following mathematical proof……”.  And the actuary says, “How much do you want it to be?”

I am pretty sure that the Institute of Actuaries doesn’t favour such “flexibility” in the way financial calculations are performed.  But in some common financial situations, everyone has a variety of legitimate options which can significantly affect the outcome.

You can control your income tax 

Take income tax, for example.  People don’t like paying income tax, and certainly don’t like paying more than they have to.  One way of minimising your tax payable is not to forget deductions to which you are entitled.  According to the Etax website, the five most commonly forgotten deductions are costs of managing your tax affairs; union or professional membership subscriptions; work related car expenses; home office expenses (including internet costs); and mobile phone expenses (to the extent that you use your mobile for work purposes).

End of financial year tax strategies can have a big impact on the income tax you will have to pay.  For example, Strategy 52 in Slow and Steady; 100 wealth building strategies for all ages is “Shift income and expenses between tax years”.  Usually your aim would be to bring forward expenses and defer income, as long as your marginal tax rate next financial year will be the same as, or lower than in the current financial year.

If you have sold any assets at a capital gain during the year, consider selling assets at a loss.  The effect will be to reduce or eliminate the amount of capital gains tax that otherwise would be payable.

Personal deductible contributions to superannuation

But one particular strategy is now more widely available than it ever has been before. This strategy offers MANY people the opportunity to manage their tax bill.  Since 1 July 2017, anyone under the age of 65 has been able to make a personal deductible contribution to superannuation.  Those aged older than 65, up to age 74, can also make these contributions as long as they pass a “work test”.  It is no longer necessary to earn less than 10% of your income from employment.  There is an annual deductible cap though, which is $25,000 in the 2017/18 tax year.

But subject only to the $25,000 Concessional Contribution Limit (and remember that this limit includes employer contributions and any salary sacrifice contributions as well as your own personal deductible contributions) and the age 65 restriction, you can contribute as much as you want to superannuation and claim a tax deduction for your contribution.  This means that there is quite a lot of flexibility for individuals to manage their personal taxation liability.

Comprehensive details of the changes and the rules applying to personal deductible contributions are available from the ATO website.

Who shouldn’t contribute?

Of course, contributing to superannuation will not suit everyone.  For one thing, concessional contributions are taxed at 15% when they are paid into the superannuation fund.  So anyone earning less than the taxable minimum threshold will not gain a tax benefit in this manner.  But even those earning assessable income between $20,600 and $37,000 get some benefit from deductible contributions.  And the benefit increases markedly for those in higher income tax bands.

Secondly, contributions to superannuation are not available to meet spending requirements until you meet a “condition of release”.  Depending on your date of birth and your employment circumstances, you are likely to meet a “condition of release” some time between the ages of 57 and 65.  So your superannuation money will not be available to support your spending needs until at least your late 50s.  So if your planning issue is that you want to retire at 50 but you don’t have sufficient assets outside superannuation to enable you to meet your living expenses between your intended retirement date and when you first meet a “condition of release”, then a personal deductible contribution may not be the ideal strategy.

Thirdly, of course you need the cash flow to contribute to superannuation.

But subject to these conditions, the ability to make a personal deductible contribution to superannuation means that more people than ever can directly impact the amount of personal income tax they will have to pay.

This is a particularly obvious opportunity to save tax for those (like me) who have already met a condition of release, but are not yet 65 (or who are older than 65 but not yet 75 and can meet the “work test”).  For us, cash flow should not be an issue because we have already met a condition or release.  If we have taxable income (for example from investments in our personal name) which would have generated a tax liability, the ability to make personal superannuation contributions offers an excellent opportunity to manage the personal tax payable.

End of financial year tax planning checklists

More ideas on end of year tax planning that could save you tax are available from various accountancy firms’ websites including StewartBrown, Bentleys, and Moore Stephens.  But better not delay, as at the date of this post there are only 5 days remaining in the financial year!