Heather Moore | Keep cash close… and your tax and financial advisers closer

It’s tax time, and that means we’re all looking to make the most of anything we can claim and get our finances in order for the new financial year.

It’s also the time of year that’s most popular to reach out to a financial adviser to get all your money ducks in a row. But how do you encourage your tax adviser and your financial adviser to collaborate and work together?

My advice is first to understand the role each of these professionals plays in your finances.

A financial adviser assesses a client’s financial situation by analysing factors such as income, expenses, assets and debts. They research and provide tailored financial advice based on the client’s specific circumstances. This advice may cover areas like investing, superannuation, estate planning, risk management and insurance. Financial planners help clients reduce spending and pay off debt effectively. They make recommendations regarding investments and retirement planning strategies to align with the client’s long-term goals.

A tax adviser is a specialist accountant who helps clients navigate tax compliance requirements, principles and processes. They ensure clients meet their
tax obligations while minimising tax liabilities. You will be more likely to achieve your financial goals if your financial and your tax adviser work together. Particularly for certain areas of tax law, you will maximise the opportunities when there is cohesion between these professionals.

Two areas where this is most important are maximising concessional super contributions, and small business capital gains tax concessions.

Concessional super
As an incentive to boost our retirement savings, tax deduction against taxable income is available to most people for contributions made to super up to a set cap each year. This cap is currently $30,000.

Since July 1 2018, if your balance is under $500,000 and you have unused concessional cap amounts from previous years, you can carry them forward for five years. This means if you have the cash available and a higher taxable income in one year, you can make a one-off contribution to super of up to $162,500 to reduce taxable income of that amount in one year.

This can be beneficial where taxable income is not consistent from year to year, such as when a client has had a large taxable capital gain. The tax incentive can be significant considering the deduction is available at the marginal personal tax rate of up to 47 per cent and the contribution amount is taxable in the fund at only 15 per cent. This is without mentioning the tax-effective environment of the funds within super, with 15 per cent tax on earnings and tax-free withdrawals when converted to pension.

It is important that your financial adviser and tax adviser are both on the same page when planning for this type of event.

Small business CGT
The small business capital gains tax concessions provide tax relief for small business owners when they sell their business or active business. The tax adviser will need to work through a process to establish if the disposal will qualify for these concessions. They will then need to advise their client on the eligibility and the benefits of the four main concessions which could be claimed.

Small business 15-year exemption:
This allows you to reduce or disregard capital gains tax on a business asset if you’ve owned it for at least 15 years.

Small business 50 per cent active asset reduction:

You can reduce the capital gain on an active asset by 50 per cent in addition to the CGT discount, if conditions are met.

Small business retirement exemption:

Claim this exemption to reduce or disregard CGT on active assets when you retire.

Small business rollover:

Defer all or part of a capital gain from selling an active asset.

Two of these reliefs provide the opportunity to make contributions to super outside the normal concessional and non-concessional caps, and if the person is under 55 years old, the retirement exemption will require a contribution to super.

Consultation between the tax adviser and the financial adviser is critical to ensure the best result is achieved for the client. Putting these two professionals in direct contact with each other to collaborate really can elevate the success of your future financial goals.

Published on Mon, 29 July 2024

Heather Moore | The West Australian
https://thewest.com.au/business/your-money/heather-moore-keep-cash-close-and-your-tax-and-financial-advisers-closer-c-15463456

As always, if you have any questions or concerns about your tax planning for this financial year – speak to your Knight partner.

They’re with you every step of the way