You should be doing more than just your tax return at the end of financial year (EOFY), it’s a time to take stock and ensure the right action plan for wealth creation and protection, but this is too often overlooked, according to Mercer financial advisers.
Financial Advice Regional Leader at Mercer, Michelle Smith, says there are a number of steps you can consider to take advantage of the end of financial year (EOFY) and ensure your finances are held in good stead for the new financial year and, more importantly, for your future working life and retirement.
Mercer has developed five tips to prepare your finances for the new financial year – designed to be implemented before 30 June.
1. Increase superannuation contributions to benefit from tax concessions and maximise future wealth
• If you are employed, you could make super contributions from your pre-tax salary
• If you are self-employed, you could get a tax deduction for the money you put into super
• If you contribute after-tax pay or savings into super, you may pay less tax on investment earnings, qualify for a super contribution from the Government or receive a tax offset
Beware of the contribution limits as you might be subject to additional tax and charges if you exceed them. Seeking financial advice will make the process easier, protect you against this risk, and help ensure you are informed of all opportunities available.
From 1 July 2014, the cap on concessionally taxed super contributions will increase from $25,000 to $35,000 if you are aged 49 or over on 30 June 2014. Also, current law states that the Super Guarantee (SG) contribution rate will increase from 9.25% to 9.5% on 1 July 2014.
2. If you have to work for longer ensure you work ‘smarter’: Review your ‘transition to retirement’ strategies
Transition to retirement (TTR) strategies are a great way to boost your super savings while you’re working. And with the end of the financial year fast approaching, it’s a great time to start making smarter decisions about your money.
If you’re already using a TTR strategy, make sure you review this before 30 June to avoid paying any unnecessary tax and to ensure you’re making the most of your opportunities.
3. Save on tax by prepaying interest on an investment loan
Prepaying interest on an investment loan before 30 June each financial year, may give you a potential tax saving, due to the tax deduction being brought forward. Interest paid up to 12 months in advance is deductible in the year that it is paid.
This means paying the interest normally incurred over 12 months in one lump sum. This may assist you with cash flow or budgeting. You can also harness the money that you save to service non - deductible debt like your home loan to accelerate these payments and save over the long term.
4. Protect you and your family with the right balance of insurance
Insurance is a necessary expense that you hope you never have to cash in on, but if you or your family faces financial difficulty you could run out of savings very quickly, well before your intended retirement date. Ensuring you have the right level of cover will protect your finances and family now and in the future.
You may be eligible to claim a tax deduction this financial year if you take out an income protection policy outside of your super account before 30 June. Most non-superannuation income protection policies are 100% tax deductible.
5. Offsetting capital gains tax
You can reduce the amount of capital gains tax on an asset you have sold during the year by making tax deductible contributions to super (if you are eligible). A deductible contribution reduces your taxable income and therefore reduces your personal tax liability. To be eligible you need to be able to contribute and satisfy the 10% test. You will qualify under this test if over the financial year your total assessable income from employment activities is less than 10% of your total assessable income and reportable fringe benefits. The main beneficiaries of this strategy are people who are self-employed or retired and under age 65.
For more information, visit Mercer Super Trust
Mercer is a global leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. Follow Mercer on Twitter @MercerAU @MercerInsights
Disclaimer: This communication has been prepared by Mercer Financial Advice (Australia) Pty Ltd (MFAAPL) ABN 76 153 168 293, Australian Financial Services Licence #411766.
Any advice contained in this document is of a general nature only, and does not take into account the personal needs and circumstances of any particular individual. Prior to acting on any information contained in this document, you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering, and seek professional advice from a licensed, or appropriately authorised financial adviser if you are unsure of what action to take. Mercer financial advisers are authorised representatives of MFAAPL.‘MERCER’ is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917. Copyright 2014 Mercer LLC. All rights reserved.