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The approaching EOFY can be overwhelming. For some, you may have just finished completing your personal tax affairs from the previous year, and it is time to start all over again. How can you make this process simpler? And what can a financial adviser do to help you make the most of your money come 30th of June each year?
A financial advisor can assist in streamlining your tax affairs. They can look at your complete financial picture and strategise your taxes accordingly. They may also be able to provide advice about your investments to minimise tax owing and see things that could be overlooked. Here are some areas you can consider for this financial year and others to implement for the year ahead.
Areas to Consider before EOFY
Your Superannuation: Your contributions to your super fund are a critical area to consider during your EOFY preparations. Any additional contributions to your super account through salary sacrifice or personal contributions can be an excellent way to get ahead on your retirement plans and also reduce your overall taxable income. The upper limit for tax-deductible superannuation contributions stood at $27,500 for FY22. Therefore, any unused contributions from 2021 can be carried forward to the financial year 2022 to increase the super contribution concessional cap. Your financial advisor can help you determine the total super concessional cap available to you for 2022 and make the best use of it.
If your spouse earns under $37,000 you may choose to make contributions into their super. Contributions of up to $3,000 into a spouse’s account can earn tax benefits of up to $540.
Your Investments: In addition to your super contributions, you also need to consider your investments to help minimise your tax. Your financial advisor can assist you hereby offering strategies in terms of structures or the timing of investments.
Any capital gains on your investments are considered as taxable income, which could put you in a higher tax bracket, so it’s a good idea to choose your timing wisely if you’re planning to sell any investments. For example, if you’ve had a big capital gain this year and know that next year your income is likely to reduce, you may consider selling your investments next financial year to reduce the chances of increasing your tax payable this year. Alternatively, you can also offset capital gains by selling non-performing investments. In this scenario, if you made a capital gain of $80,000 from the sale of one investment and a capital loss of $20,000 on another, you may be able to offset the capital gains income with the loss and reduce your net capital gain to $60,000.
Also note that if you sell an investment, such as a house or property, it is the date of contract completion that is important for your tax return, not the settlement date. For example, if you sign a contract on or before the 30th of June 2021, the capital gain or loss will affect your 2021 financial year tax return.
Tax implications are only one of many factors to consider when buying or selling an investment, so it is important to consider all factors before making any commitments. You may be interested in our article “when is the best time to pull out of an investment”.
Your Self-Managed Super Funds: Self-managed super funds (SMSF) differ from other super funds as they are managed by you, however, they are still treated the same for tax purposes. This gives you additional control with your taxes as you can decide when an asset is sold or purchased which can have an impact on your tax return. You will also need to have your compliance sorted, investments minuted and ensure your investment and strategy document is updated. As a result, you may require a financial advisor and accountant to advise on the accounting, auditing, and taxes payable for your self-managed super funds.
Insurance: Insurance policies such as income protection are tax-deductible. If you have a higher income now, you may decide to pay premiums in advance for the year ahead before June 30th to claim deductions in this return.
Simplify your affairs: Many people have collected accounts and investments over time and end up with a network of financial affairs that is more complicated than it needs to be. This can make EOFY preparation too complex and could also be costing you in extra fees. A financial advisor can make the matters simpler and streamline your financial affairs by getting deep clarity about who you are, what you want, where you stand, and what is most important for you. They end up doing the job that needs to be done, with minimal complexity.
Streamline investment portfolios aligned with your risk profile, goals, and values: Financial advisers can analyse your personal goals, risk tolerance, financial stability, and values to customise an investment plan aligned with your profile. The rigorous wealth management offered can streamline investing, especially when it comes to annual reporting.
Help you do a debt audit: A financial advisor can assess and classify your debts and determine the optimum interest rates. Many advice firms have internal lending specialists, as we do here at Invest Blue. Together with your adviser who knows you best, our lending team can ensure that you are not paying higher interest rates than you need to and can make changes to the debt structure accordingly to bring out the most suitable solution to your needs.
Provide you with a clear understanding of your cash flow and budget: An adviser can assist you through a deep dive into your finances to get an overview of your complete financial picture. They can look at your expenses for living for today and saving for tomorrow and create a balance between the two. Financial advisors use automated tools for cash flow analysis and use the results to identify your budget, your tax-deductible expenses, savings opportunities, and keep track of your expenses and savings.
Leverage your superannuation environment: Superannuation is an investment environment that has lower tax implications. This can be an advantage if you have funds to invest and won’t need to access them until your retirement years. Each year there is the potential to contribute more to super and that may be right for you. An adviser can help you understand your contribution options and to see the pros and cons of doing so, allowing you to make an informed decision.
Are any of my fees with a financial adviser tax deductible?
Fees related to managing an investment that leads to an assessable income can be deducted. The cost of preparing financial advice or plans is not deductible.
If you are paying for income protection insurance outside of your superannuation, those premiums are also deductible.
Some general tips:
Use a cloud-based filing system to store statements and receipts as they come in. Just donated to your favourite charity? File it away as the email hits your inbox. When it comes to tax time, you will have your records handy and easily sharable with your accountant or tax agent.
Create a personal ‘tax time’ checklist as you prepare your documents this year, then next year you will know what you are looking for and save time submitting ad hoc documents. You are less likely to miss things this way too.
Use a cash flow tool like Money Brilliant to identify and code tax-deductible expenses as they occur throughout the year. This tool then generates a nice summary report for you to share with your accountant or tax agent.
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
