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FY2012 Year End Planning Tips

 1.    Lock in 30% rebate by prepaying private health insurance premiums by 30 June 2012

As announced in the recent 2012 Federal Budget, from 1 July 2012, the private health insurance rebate and Medicare levy surcharge will be income tested against the income thresholds in the table below.

 

Unchanged

Tier 1

Tier 2

Tier 3

Singles

$84,000 or less

$84,001-97,000

$97,001-130,000

$130,001 or more

Families*

$168,000 or less

$168,001-194,000

$194,001-260,000

$260,001 or more

Rebate
Aged under 65

30%

20%

10%

0%

Aged 65-69

35%

25%

15%

0%

Aged 70 or over

40%

30%

20%

0%

Medicare levy surcharge
Rate

0.0%

1.0%

1.25%

1.5%

If your rebate is likely to be materially reduced from current 30% (to 20% – 0%) from 1 July 2012, you may like to think about locking in the 30% rebate by prepaying the premiums now. The ATO’s fact sheet confirmed that current 30% rebate will apply to premiums that provide insurance cover for a future income year. The main conditions are:

The ATO has also confirmed that a premium payment occurs when the insurer receives the amount. The deadline for the payment may vary – in the case of HCF, for example, they only accept credit card payment up to 27 June.

2.     Prepay medical expenses and claim benefits  from private health cover by 30 June 2012

The Government will introduce a means test for the Net Medical Expenses Tax Offset from 1 July 2012. For taxpayers with adjusted taxable income above the Medicare Levy Surcharge thresholds (Tier 1- 3 in the above table), the threshold above which you can claim the tax offset will be increased from $2,060 to $5,000 in FY2012. The rate of the tax offset will also be reduced from current 20% to 10% for eligible out of pocket expenses incurred.

If  you are likely to lose Net Medical Expenses Tax Offset next year, you may like to purchase your prescribed medicine and claim benefits from your private health cover by 30 June 2012, so you can claim net medical expenses in your FY2012 tax return.

3.  Defer your HP (Hire Purchase) arrangement for Motor Vehicle purchase until next month – claim GST upfront and $5,000 immediate deduction

From 1 July 2012, business taxpayers on a cash basis will be able to claim GST paid upfront on acquisitions under new hire purchase (HP) arrangements rather than delaying the claim until each instalment is paid. This will bring the GST treatment of HP agreement in line with the GST treatment under Chattel Mortgage agreement.

However, this change will result in HP interest subject to GST, so will make HP finance slightly more expensive if you are non-business taxpayers who are not registered for GST.

New GST treatment will apply to a hire purchase agreement entered into on or after 1 July 2012.

If you are an eligible small business entity, you can claim an immediate deduction for the first $5,000 of the cost of a new motor vehicle next month. The remainder of the cost of the vehicle will be depreciated at 15% next year and 30% in subsequent years, subject to private use adjustments.

Forest Accountability is an authorized broker of Macquarie Lease. If you are interested in purchasing a motor vehicle under a HP agreement, please contact us for a quote.

4.   Defer your super contributions until after 1 July 2012 to take advantage of    new “Low Income Super Contribution”

If you are an employed or self-employed person and your adjusted taxable income is likely to be below $37,000 next year, you may defer this year’s remaining employer/concessional contributions to next month to take advantage of “Low Income Super Contribution” applicable from 1 July 2012.  The lesser of 15% contributions tax or $500 will be contributed by the Government, effectively reducing the 15% contributions tax on the super contribution to potentially nil. In order to receive maximum $500 Government contribution, you must make at least $3,330 concessional contribution next year.

The tax bracket for income between $18,200 and $37,000 will increase from current 15% to 19% from 1 July 2012. As there is no tax on super contributions from 1 July 2012, you can effectively save 19% tax by contributing/salary sacrificing into super, subject to your cash-flow and contribution cap.

The personal income tax rates for the 2013 income year are as follows:

Taxable income $ Rate %
0 – 18,200 0
18,201 – 37,000 19
37,001 – 80,000 32.5
80,001 – 180,000 37
180,001 + 45

*the Medicare levy is excluded and the flood levy will cease to apply from 1 July 2012

**The low income tax offset will reduce to $445 for the year from 1 July 2012. This means the effective tax-free threshold is $20,542.

Unfortunately, the Government Co-contribution is proposed to be halved from current max $1,000 to $500 next year. This year may well be the last chance you can expect up to $1,000 Government Co-contribution, so don’t forget to make $1,000 personal/non concessional contribution into super NOW. 

5.  Pay the minimum pension amounts by 30 June 2012  to avoid the pension losing tax exempt status

Once you start a pension/super income stream, you are required to draw down the minimum pension amounts each year, depending upon your age group as detailed below. The ATO clarified its view in Tax Ruling 2011/D3 that a failure to comply with pension rules and payment standards may result in the pension/income stream “ceasing to exist”, hence losing its tax exempt status. All income and capital gains in the previous pension account will become taxable from the beginning of the year, 1 July 2011.

The Government confirmed in the recent Federal Budget that the 2011/12 minimum pension drawdown levels with 25% concession will continue into next year, 2012/2013 before increasing to the ‘normal’ levels from 1 July 2013. This is good news for pensioners who are still working and/or are still assessed on pension income under age 60, as they can minimize the amount of draw down to the minimum required amounts. As a result, you can keep more money in tax exempt pension account and maximize exempt income in the account. Also, you won’t be forced to sell investments that may have fallen in value to fund the pension payments, and could keep more money invested until market recovers.

Age at start of pension (and 1 July each year) In 2011/12 & 2012/13 From 1 July 2013
Under 65 3% 4%
65-74 3.75% 5%

6. Transfer personally owned shares to your own super fund via Off market transfers by 30 June 2012

Impending changes (from 1 July but are not yet law) will prevent trustees from using off market transfers to transfer shares into their SMSF.  For example, if you personally own BHP shares and want to transfer them into your SMSF you could simply complete an off market share transfer to transfer them into the fund.  However, the new rules will require you to sell your shares on the market, contribute the proceeds to your fund, then the fund will need to purchase the BHP shares.

In-specie transfers may provide a great opportunity for realizing capital losses in your personal tax  and for your SMSF to “inherit” the low purchase cost for tax effective capital gains in the future, taking advantage of current weakness in the share market. 

More information?

For more information on these year end tips based on your personal circumstances, please consult with Aki Forrest, Tax & Financial Adviser of Forest Accountability on 02 9905 6677 or  info@forestaccy.com.au .