Written by Ivan Fletcher
With the tax year end approaching, below is a timely reminder on some investment and super related tax matters for preparation and inclusion in your 2023 tax return.
1. Check your Super Contribution Classifications – are correctly classified by your super fund for the last financial year. This is especially important if you made personal contributions this year (See below).
2. Did you make any Personal Contributions to Super for the Year?
If Yes – then you have the scope to decide whether you want that contribution to be classified as concessional or non-concessional. Please note that although 30 June 2023 has passed you still have the flexibility to change the classification (as long as it is done before you lodge your tax return or 30/6/24 in 12 months time (Whichever comes first). In the case of “Spouse” or “personal Concessional” contributions it is imperative you provide your tax agent with the confirmation from your super fund to claim the tax benefits.
The Case for non-concessional
If your income is between $42,016 and $57,016 then you may qualify for the government co-contribution up to $500 (if below the lower threshold). To achieve the maximum entitlement (assuming you are under $42,016 income) you need to have $1,000 as non-concessional. A $500 return on a $1,000 investment is a 50% return and still the best tax break for those who qualify.
Caution – if you claim a deduction on all your personal contributions, then you will NOT qualify for the government co-contribution payment. To maximise the government co-contribution you should keep $1,000 as non-concessional.
The Case for Spouse Contribution (non-concessional)
If the lower income earning spouse has income under $37,000, then allocating $3,000 of personal contributions as “Spouse” contributions will allow the higher earning spouse up to $540 (18% of $3,000) in tax offsets. Spouse contributions are included in the non-concessional annual Limit of $100,000 and are not subject to the Super Contributions tax of 15%.
The Case for Concessional
As of 1 July 2017 personal contributions (funded from personal accounts) may also be classified as concessional allowing for a tax deduction in your personal tax return, regardless of whether you are self-employed, a wage earner, or retired and under age 67.
If you have income in a higher tax bracket with taxable income in excess of $45,000 (you commence paying tax at marginal rate of 34.5% tax rate inclusive of Medicare levy). A personal tax deduction reduces your tax payable at your marginal tax rate. A 15% contributions tax will however apply to your super fund. In this case the net tax benefit is still 19.5% (34.5% – 15%). The tax differential (benefit) increases if you are in higher tax brackets.
Caution 1– There is a maximum of $27,500 p.a. (unless you have qualified to carry forward unused Contributions from the previous 4 years) allowable as concessional contributions which is inclusive of employers superannuation guarantee, and salary sacrifice contributions and in some cases insurance premiums as well as your personal contributions (in the event you claim the deduction).
Caution 2 – If you are already below the zero tax threshold then tax deductions have no value and will in fact cost your 15% Contributions tax unnecessarily. As a rule of thumb if your taxable income is lower than $25,000 you may not need the deductions. At this level of income you will qualify for some tax rebates which may offset any taxes you would be due to cover at this level. Just because your Super fund sends you a “Notice of Intent” form (by default), does not mean you should claim the deduction.
Tip – Being Tax Smart – If you are unsure of how much you should claim, you can get your tax return DRAFTED (But not lodged) and then consult with your tax agent as to whether there is any benefit in claiming all or part of your personal contributions as a tax deduction.
The Process To Claiming the Deduction
All personal contributions are classified as non-concessional in the first instance so to claim a tax deduction you need to lodge a “Notice of Intent” with your super fund.
If you lodge a “Notice of Intent” to Claim a tax deduction with your super fund the classification is then changed to concessional and the 15% contributions tax will be charged to your super fund. You will receive a confirmation from your super fund as evidence to include the deduction in your tax return. (without this confirmation you cannot claim the tax deduction).
With most super funds this is a decision you can make well after 30 June. The Notice of Intent form must be lodged before you lodge your tax return or before the next 30 June (ie 12 months) – whichever comes first.
3 . Depreciation on Investment Property
Make sure you have a depreciation(s) schedule for your accountant including Building Write-Down as well as fixtures and fittings (white goods, heating/cooling systems, carpets, etc). If your investment property is under 40 years old (or had a major renovation in the last 40 years), there will be deductions available. Seek advice from your accountant if you are uncertain. If you have recently purchased a property, you may need to engage the services of a Quantity Surveyor to prepare the appropriate schedules for your investment property.
4. Investment loan deductions
Mortgage broker and loan establishment fees, stamp duty charged on the mortgage, title search fees charged by the lender, valuation fees for loan approval, costs for preparing and filing documents on the loan, and lender’s mortgage insurance – are all tax deductible items. If your total borrowing expenses are more than $100, the deduction may be spread over five years or the term of the loan, whichever is less. These expenses are often overlooked when doing tax returns.
5. Income Protection Insurance Premiums – where the policy is held outside of Superannuation, premiums are tax deductible. If your policy is held within super or funded by your superannuation, it is NOT deductible in your personal tax return.
6. Distribution and Dividend Income – This one is easy to miss. In the case of managed funds you will receive annual tax statements for using in your tax return. You may have 2 tax statements (with the second one covering Capital Gains/Losses). Also any separate fee statements on investments are deductible in your tax return. This does not apply to Super or Pension accounts as they are already claimed as deductions by your super fund.
7. Capital Gain / Loss
If you have disposed of any investments, (shares, managed funds, real estate, art) then you will need to prepare capital gain/loss calculations for inclusion in your tax return. For property this calculation has many components including the add back for items such as stamp duty sales costs as well as adjustments for construction write down). It is highly recommended you consult with a tax agent for these calculations.