The Finance Guru June 30 Tips Part 1

Finance Guru Pre June 30 Tax Tips

TIP 1 – PREPAY PRIVATE HEALTH INSURANCE

If you’re likely to be hit by the new means test on the tax rebate for private health insurance, you should consider prepaying next year’s premium before June 30.

”The Tax Office put out a ruling in 2004 that says you get the benefit of the rebate in the year you pay the premium,” ‘So if you pay now, you should still be eligible for the full rebate.’

From July 1, the full rebate will only apply for singles earning up to $84,000 and couples earning up to $168,000. A reduced rebate will apply for those earning between these amounts and $130,000/$260,000, with higher earners missing out altogether. An increased Medicare surcharge will apply to those earning more than $97,000/$194,000 who don’t take out private health insurance.

For a family with one child paying a premium of $231.90 a month (or $2782.90 a year including the current 30 per cent tax offset), prepaying now could save between $397.55 and $1192.70 next year, depending on which income bracket they fall into.

Health insurers are confident they can pass on the rebate in the form of lower premiums for prepayments but both Medicare and the Tax Office have indicated they have not yet confirmed how they’ll handle prepayments in light of the new legislation. Some insurers are even offering the ability to prepay for up to 18 months.

TIP 2 – MAXIMISE MEDICAL EXPENSES

If you’ve incurred a lot of out-of-pocket medical expenses this year, it would be worth stocking up on pharmaceuticals or getting that dental work done before June 30.

The net medical-expenses rebate, which currently allows you to claim a 20 per cent tax offset on out-of-pocket medical expenses above $2000 (for you and your family), will be means-tested from July 1 – so you may find it harder to access next year.

The means test will apply to people with adjusted taxable incomes in excess of $84,000 for singles and $168,000 for couples (the same income levels where you’re hit with the Medicare levy surcharge if you don’t have private health insurance).

For these taxpayers, the offset next year will only be available on out-of-pocket expenses in excess of $5000 and it will be reduced to 10 per cent.

TIP 3 – MAXIMISE CONCESSIONAL SUPER CONTRIBUTIONS

If you have the cash flow, it makes sense to look at making deductible or concessional super contributions before June 30, especially if you’re over 50 or earning more than $300,000. From July 1, the limit on concessional contributions for those aged 50 or more will halve to $25,000 and people earning more than $300,000 will pay 15 per cent extra tax on their concessional contributions, lifting their contributions tax rate to 30 per cent.

My thoughts are ff you’re over 50 it may be your last chance, at least for a while, to make a $50,000 contribution.

‘A lot of people also don’t realise that the $50,000 depends on your age at June 30, not the start of the year. So even if you’re just about to turn 50, you can still contribute up to $50,000.’

Self-employed and people who earn less than 10 per cent of their income from employment can make a personal deductible contribution any time between now and June 30 (though it must be in your fund by June 30). You just have to make sure you don’t exceed the [existing] caps and you have the income to offset the deduction against,

For employees, loading up your super before June 30 is more difficult. You can ask your employer to increase or start salary-sacrifice contributions on your behalf but the arrangement can only apply to income you’re not yet entitled to.

If you are expecting a bonus but haven’t yet had the amount confirmed, sacrificing part or all of it may be possible.

My advice would be for employees over 50 you should also review their salary-sacrifice arrangements for next year to ensure they’ll stay within the new caps.

Source: RBS Morgan, The Age, The ATO.