Hot Tips for the End of Financial Year – Part 4

7. Medical tax offset for self-funded Age care residents

Background

Self-funded age care residents earning less than $90,000 (singles) or $180,000 (couples) can claim 20% of the age care expenses in excess of $2,218 per annum. The expenses that can be claimed under the net medical tax offset include daily care fees, income tested fees, extra services fees, accommodation charges and periodic payments of accommodation bonds. This offset is expected to be phased out in 2019.

Case study

Maria is an age care resident earning annual income of $70,000 from her investment and property portfolio. Maria’s age care expenses for the 2015 year are as per below:

Daily care fees: $47.49 per day ($17,334 p.a.)

Means tested fees: $69.93 per day ($25,528 p.a.)

Daily accommodation payments: $62.87 per day ($22,947 p.a.)

Total: $180.29 per day ($65,805p.a.)

Based on Maria’s income, tax payable in the 2015 years is approximately $15,922 (excluding Medicare levy). Maria is eligible to claim a medical tax offset for her age care fees as per below:

Medical tax offset = ($65,805 – $2,218) X .20 = $12,717

The net medical tax offset will reduce Maria’s tax liability from $15,922 to $3,205, a saving of $12,717.

8. Personal deductible super contributions for self employed

Background

Self-employed individuals can claim a tax deduction on any personal superannuation contributions they make given they meet the following eligibility criteria:

  • Personal contributions must be made to a complying super fund or retirement savings account;
  • The individual must be under age 65 or over 65 and meet the work test;
  • For those earning employment income, less than 10 per cent of the individual’s assessable income, reportable fringe benefits and reportable employer superannuation contributions must come from being an employee.

For the 2015 year individuals under the age of 50 may claim up to $30,000 whereas individuals over the age of 50 may claim up to $35,000.

Case study

George is age 56 and operates a courier business as a sole trader earning $84,000 per annum. In the 2015 year George has business deductions of $30,000 reducing his taxable income to $54,000. His tax liability for the 2015 year is estimated to be $10,177 including Medicare levy.

George can make a personal contribution of $35,000 before 30 June 2015 and claim a deduction for this amount in the 2015 tax return. This will reduce his tax payable to $0. The amount contributed to superannuation will be taxed at 15% providing George with a tax saving of $4,927.

Superannuation benefits are generally preserved and cannot be accessed until a condition of release has been met. However, since George is over the preservation age for the 2015 year (55 years) and working he may access 10% of his superannuation benefits per year in the form of a non-commutable income stream.

The information presented is general in nature and not to be used, relied or acted upon without seeking professional advice to ensure that the information appropriate for your individual circumstances. William Buck accepts no liability for any errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice.