As the end of the financial year draws closer property owners looking to sign contracts need to consider how the sale and date of the contract will impact on their tax position. We asked JULIA HARTMAN, the Founder of BAN TACS – National Accountants Group to explain further and outline some of the options that should be taken into consideration.
Most readers would be aware that the date the contract is signed determines the year that the capital gain is taxed.
If you are making a capital loss you can carry that forward to offset against future capital gains. But if you already have a capital gain in your 2019 income then you need to make sure this loss is in the 2019 financial year if you want to offset the gain you have already made. This means you should try and sign the contract before 30 June.
The general approach is to delay signing until after 30 June. If nothing else at least you get to utilise the tax money for a year. Just be careful. If you are going to be in a higher tax bracket next year, considering how low interest rates are, this could be a false economy.
This year there is another consideration to throw into the mix.
From the 1 July 2019 we now have catch-up superannuation contributions. Provided your superannuation balance at 30 June 2019 is less than $500,000. This means that the unused portion of your 2018/2019 $25,000 contributions cap can be carried over to 2019/2020 allowing you to make a contribution larger than $25,000 in the 2019/2020 year.
If you are prepared to put some of the sale proceeds into superannuation in order to reduce the effective tax rate from your personal, marginal rate to possibly as low as 15% then the $25,000 cap is a problem with a large capital gain all in one year. This new concession doesn’t allow you to spread the gain over multiple years, but it does allow you to spread your contributions cap over a number of years which can be just as good.
For example, if your employer pays $10,000 a year into super in both 2019 and 2020 then each year you have $15,000 available that you can contribute yourself and claim a tax deduction in your personal tax return.
If you sign the contract before 30 June, 2019 then you can only put $15,000 of the sale proceeds into superannuation and claim a tax deduction for them. Alternatively, if you delay signing until July, 2019 you will be able to contribute and claim a tax deduction for $30,000.
There are some twists and turns in working out whether you qualify to make superannuation contributions and what is unused. Your employer contributions may be made either side of 30 June.
Obviously, you are going to seek advice from your Accountant on getting this just right. They will need to know about your employer contributions.
Here is a link to my blog on how this works and how to provide your Accountant the information they require.
If you have any questions or need clarification on any aspect please use the comments box below so Julia can reply or call our office on 1300 888 299 to discuss the matter further.
Julia Hartman is the founder of the BAN TACS National Accountants Group which has offices on the east and south coast of Australia, from Mackay to Adelaide. You can visit Julia’s website to learn more or ask Julia a question by going to her online forum.
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.