Get ahead of yourself this financial year - Part 2

The end of another financial year is already on the horizon. If you're like many people, you probably won't start reviewing your finances until after 30 June 2010, potentially missing opportunities to reduce your tax while building your wealth. However, the best time to prepare for the end of the financial year is now.

Despite recent market conditions, super is still the most tax-effective way to save for your retirement.

Below are the final 3 tax-effective super strategies, suitable for a wide range of people and incomes.

For last weeks 4 tax-effective super strategies, click on Get ahead of yourself this financial year - Part 1.

Strategy 5 - In specie transfer to super

What's the strategy?

If you hold allowable assets in your own name, you may consider contributing these assets into your super account. Under superannuation law there are a few personal assets that a member can contribute to their super account. These include listed securities, interests in a widely held trust and business real property. Where you hold an asset personally, the income is taxed at your marginal rate of tax. Assets held within super are concessionally taxed at the super fund tax rate (a maximum of 15%).

Transferring an asset from your personal name into the name of your super fund will trigger a Capital Gains Tax (CGT) event. Market performance over the past few years has meant some assets have fallen in value. Transferring these allowable assets to your super fund now may result in a lower CGT impact. 

If you are considering this strategy you need to be mindful of the contribution caps. The asset transfer will be treated as a contribution and measured against the relevant caps. If the value of your contribution exceeds the contribution cap, you will be charged penalty tax on the excess amount.

Where the asset being transferred is business real property, there is potential to access the small business provisions.

Who can use it?

You may benefit from this strategy if you have allowable assets, are eligible to make a contribution to super, have not exceeded the contribution cap and you wish to boost your accumulated super benefits.

Strategy 6 - Reviewing pensions

What's the strategy?

The end of the financial year is always a good time to review your income stream position.

Minimum pension payments

The 50% reduction in the minimum pension payment has been extended to 2009/2010 as a result of the 2009 Federal Budget announcements. If you have already drawn your minimum pension amount, you can elect to receive no additional pension payments for the financial year. This will help to ensure you preserve the capital in your pension fund. 

Transition to retirement

If you are over 55 and still working, you could consider a transition to retirement strategy. This strategy has a number of benefits. There are tax incentives associated with moving benefits from accumulation phase to the tax-free pension phase plus the ability to combine a salary sacrifice arrangement with a transition to retirement income stream. In addition to this, you have the flexibility to reduce the hours you work and supplement your income by drawing a pension.

Who can use them?

You may benefit from these strategies if you:

• Are 55 or older and have retired.

• Are 55 and still working.

• Have already started to draw a pension.

Strategy 7 - Gearing in Super

What's the strategy?

Given lower interest rates and the falls in many asset values, you may consider borrowing within super to invest. There are restrictions that apply to this strategy that must be adhered to. 

Who can use it?

You must be comfortable with the concepts and the risks associated with gearing. You may benefit from this strategy if you would like to boost your super but are restricted by the contribution caps. But you must be confident that your superannuation fund can pay back the money it has borrowed. Given the risks involved with gearing and the rules and regulations that apply for gearing in super, I recommend that you seek advice before considering any gearing strategy.

Next steps

The end of the 2009/10 financial year will be here before you know it. Don't wait until 30 June 2010 to get the financial ball rolling. Get ahead of yourself this financial year by calling me on 9372 7955 to discuss end-of-year strategies.

Important Information

The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.