Thank you to our friends at Aspire Planning for their expert financial advice and for contributing this article.
The end of each financial year is normally a great time to assess how the year has progressed. It’s also a time when the focus turns to tax related matters such as your annual return and super contributions and to take account of rule changes for the new financial year.
As this financial year draws to a close, it will be viewed as a year like no other. COVID-19 (coronavirus) has impacted everybody’s life, albeit in different ways for different people.
Whilst many of the rules have not changed, this year there have been some new rules introduced due to COVID-19.
When the sharemarkets decline, this normally translates to a decline in superannuation balances. Some retirees would prefer to lower the drawdown on their funds whilst the market is down.
To ease the pressure, the Government has moved to cut the minimum drawdown requirement on superannuation pensions by 50 per cent for both this current financial year and next year. If you are in a position to take advantage of this drawdown reduction, then it may go some way to maintaining your retirement savings.
Lets start by reminding you that any contribution, must have been received and processed by your super fund by June 30. To be safe, that means submitting to your fund a week before this date.
If you earn $38,564pa or less, if you make a contribution to your super with your own fund, the government will also make 50% of that contribution into your fund, up to the value of $500. Hence, if you make a personal contribution into your fund of $1,000, the government will contribute an additional $500.
The government contribution reduces if you earn more than $38,564pa and cuts out altogether once you earn more than$53,564.
Concessional contributions are made into your Super fund before tax, and include, employer contributions and any salary sacrifice payments made to the fund. The concessional contributions cap is currently $25,000pa and in the past, any used portion of the cap was lost each year.
For example, say you only made $20,000 in concessional contributions in the 2018-19 financial year, then you have $5000 in unused contributions you could make this current year. This means you could contribute a total of $30,000 in this current year ($5000 unused contributions plus the annual contributions limit of $25,000) as long as your super balance is less than $500,000.
Early Release of Super
As part of the measures taken by the government to support those impacted by COVID-19 some people will be able to access up to $10,000 of their super between now and 1 July 2020, with a further $10,000 in the first three months of the 2020-21 financial year, tax free.
Those who are eligible include the unemployed, people receiving JobSeeker Payment, Youth Allowance Jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit. People who’ve been made redundant, had their work hours reduced by 20% or more or sole traders whose turnover has reduced by 20% or more since 1 January this year are also eligble.
Applications can be made online from mid-April by using myGov. Members will self-certify that they satisfy the eligibility criteria.
Thanks to our friends at Aspire Planning, who contributed this article.
Some workers have experienced reduced income as a result of COVID-19 and this may mean that they may benefit from a tax refund if they have not worked the full year or not at the same pay rate they began the year.
For those who have been actively employed and asked to work from home, it’s worth remembering that you can claim against expenses associated with working from home such as mobile and internet costs, electronic device purchases and stationery costs.
Normally, the ATO uses a fixed rate method to calculate expenses, 52 cents for each hour working from home to cover running costs, ie. electricity/gas, decline in home office furniture etc. You would then provide itemised expenses such as phone, internet, stationery consumables, etc.
However, this year, for the period 1 March – 30 June 2020 the ATO has a quick formula which will allow you to claim 80c for every hour worked at home. This formula is designed to cover all costs.