Made a costly mistake...

My elderly parents sold a IP in September 2019 and I'm doing their taxes for FY20 now. Their CG is about 280k, so after 50% discount for long term cg, it comes to 140k or about 70k per person. They both dont work and have no other income.

I'm hitting myself for not doing a concessional super contribution for them before 30th June to reduce their tax further. I could've gotten them down to the tax free threshold!

What can I do now, it's September. Can I still do the concessional contribution for FY20?

 

Are you licenced to do this?

 

He won't be asking these questions if he is.

 

Only they can make a concessional contribution and it is subject to rules based on age, and also taxable income which appears to be $70K each. And no they cant do it now. But if funds were added to super its not too late to submit the deduction notice to the fund, now.
And if you assisted them with their tax - are you qualified to determine the cap gain is correct ? Their choice of tax preparation alreday seems to have cost them a bit of money. $29,000 approx. Free isnt great value support.

They may well have lost a $50K tax deduction each to virtually wipe out tax payable. I often see people learn that the friendly helpful family cost much more than a adviser fee at the time.

Could they have benefited from the downsizer contribution rules ?

 

They could have benefited by getting some proper advice. You are probably doing this to save them fees, but it has cost them a bit more than the fees would have been and you are not covered by professional indemnity insurance.

 

Their returns are still going through a tax agent - not doing anything to save money really. The tax agent goes thru all my source material and confirms whether correct or adjusts my figures but I always do the preliminary figures for everyone in my family.

They sold an IP not their home so I don't think the downsizer contribution rules apply. What is this 50k deduction you refer to? Can you please elaborate why I've already cost them 29k

 

Paul and Terry have been very generous with their response to OP.
There better be a Christmas cards going their way for answering your questions for free.

 

Painful to read though

but yes, as always, very grateful

 

Terry - I have a new tax tip

Tax planning is only of benefit if done before 30 June and if its validated with advice so key steps arent missed.

One of the biggies I see annually is a property sale. Taxpayers dont have private health. So they pay 4% more tax (both) on total income. The medicare and private health on some capital gains can be eye watering. Client says > So I have to pay medicare on property profits too !! Yep.. And medicare Levy surcharge. Help debt repayments get increased up to 10% of income . Clawback of centrelink child care and Div 293 adds an extra 15% on employer super contributions. The 2% MLS is the only one that can be avoided. BUT it means a policy for all days of the year or its pro-rata.

 

Damn that's rough. I have never heard of this one. Not applicable for PPOR sale?

 

Does that include being implemented by June 30 as well eg. in the case of undeducted super contribution?

 

If the gain is exempt then there wouldnt be a taxable value to impose levy on.

Sources of extra income can typically include:
- Investment income
- Isolated profits on property devs share of profit
- Personal services income from a company or trust
- Trust distributions (eg family trust)
- CGT taxable amounts
- Payout of unused leave
- NOT bona fide redundancy, but other termination amounts
- Employee share scheme discounts
- Bonuses
- Allowances (subject to deductions)
- Super amounts for those aged -60
- Super for those in Govt defined schemes
- Foreign income
- Rental income (net positive income)
-

 

this is why year end tax planning is as critical as getting the returns correct.

 

@Paul@PFI is probably referring to the fact they might have been able to make a $25k deductible contribution to super to reduce their taxable income. $25k each = $50k

if they are both under age 67 don't need to meet the work test but if they were 67 to 74 then they must pass the work test or be eligible for the work test exemption.

all of that is moot at this point however.

 

Traps for young players - never leave your tax planning to the last minute.
To the OP - take this one face down and learn from it.

I have learn my hard lessons and swallow the hard truth pill in the past. Very costly mistake I won't want to repeat.

 

i'm not sure where the $29k comes from. $70k taxable income each is about $14k in tax. so both of them will be paying about $29k.

but with a tax deductible super contribution of $25k it brings down tax payable to about $6k each. So total tax payable of $12k. thats a cost of $17k. The contribution to super will be taxed at 15% so $7.5k contributions tax. Net tax cost of not implementing the strategy would be around $10k.

@Paul@PFI might be talking about a reserving strategy to contribute $50k per person. If they have an industry fund might not have been able to do a reserving strategy.

At a minimum lack of planning has cost them $10k

 

Maybe more.....I was referring to catch up contributions. yes Mike $29K comes from approx $14.5K tax each if a catch up $50K contribution each was used to bring taxable income down to $0 or close tax payable. Many older person with one off CGT events meet the catch up rules if they have balances under $500K (each). $25K each if balances are > $500K would save aapprox $10K. The extra $25K gives a enhanced outcome v the first $25K

 

yes good point. catch up contributions. as they are old and not working a good chance they may not have made any contributions in the prior year as well.

that was an expensive decision.

isn't @scientist the same person who has been circulating distributions subject to s100A ? is the tax agent being consulted on any of this ?

 

Asking before is often far cheaper than learning later. My best tax planning savings is clients who ask - Just in case. One of the contribution mistakes I see too often is over claiming deductions on super. Claiming $25K to bring taxable income to $0 The marginal rate under a taxable income of $37K is hardly worth the deduction. BUT for those with franked income a lower taxable income could leave more space for refundable franking.

Same with circ distributions. A new company formed in late June may have been a basic solution.

 

Thanks all for the replies, yes I'm kicking myself for not being more proactive. I was occupied with my own things and neither party enquired with each other until it was too late. My fault though. It is what it is - a costly mistake.