The amount of tax Australians pay on savings has been a hot topic as the new financial year unfolds.
Labor had planned to offer a 50 per cent tax discount on interest income earned up to $1000, but the good news was deferred as part of the government’s target to return the budget to surplus in the next financial year. So what other tax relief is on offer for Australians, and how can you maximise any tax relief to boost your savings?
Consider income splitting by increasing the wage income of your partner now that the tax-free rate has been increased from $16,000 to $20,452. A couple with their income split equally could potentially receive up to $40,904 annually tax-free. They will be eligible for a further $33,396 of their taxable income at the 20.5 per cent marginal rate including the Medicare levy.
Contributions to super
Despite rises in super contribution caps being frozen for 2012/13 and 2013/14, Australians can still receive tax incentives associated with the super system by making regular contributions.
The before-tax cap for under-50s is $25,000 for 2012/13. These contributions are taxed at 15 per cent, so are only tax-effective if you pay more than 15 cents in the dollar tax on your personal income.
The after-tax super contributions cap remains at $150,000 for 2012/13. The federal government will also chip in money if you make after-tax contributions to your super fund.
Those earning less than $31,920 receive the full benefit, with up to 50 cents for every dollar they put in. While $500 in tax-free money is still an incentive to contribute, it is half of what you would have received last financial year.
Reduce tax on investment earnings
You could potentially lower any taxes on investment earnings from Australian financial markets by taking profits as superannuation after-tax contributions. This can reduce the tax by about 31.5 per cent while increasing retirement savings.
Asset sales deferment
Consider selling any items eligible for capital gains tax close to the last day of the financial year. This may delay your tax payment well into the next year.
Clever financial strategies use tax incentives to not only minimise income tax but also boost your overall savings.
Taxation considerations are general and based on present taxation laws, rulings and their interpretation as at the date of this article. You should seek independent professional tax advice before making any decision based on this information