A leap year can also cause your tax to leap
24 May 2016
By Shadforth Financial Group
As this year is a leap year, some of you might receive an extra pay period. If you are paid weekly or fortnightly then the number of fortnightly pay periods could be 27, instead of the usual 26, and the number of weekly pays could be 53, instead of the usual 52. The extra pay period happens because 2016 is a leap year. But before you reflect positively on your good fortune you need to take steps to make sure you don’t get caught out because you receive more income than you anticipated.
Are you affected?
If you are on a weekly or fortnightly pay cycle and you were paid on either Wednesday 1 July 2015 or Thursday 2 July 2015 then you are affected and you will receive one extra pay period.
Take a look below to see how the extra pay period might affect various areas of your personal finances.
Impact: Extra super guarantee (SG) and salary sacrifice into your super may trigger excess concessional contributions. While excess contributions can be refunded, it’s better to avoid such problems in the first place.
Practical tips: Ask your employer to defer salary payments and or super contribution payments due on 30 June by one day to 1 July 2016. However, some employers may want to pay on 30 June so they claim the tax deduction in the same financial year. You could consider suspending the salary sacrifice arrangement for one pay period to avoid excess contributions.
Medicare levy surcharge
Impact: If your income is likely to go over the income threshold then you will have to pay the Medicare levy surcharge.
Practical tips: If you are affected then consider
taking out appropriate private hospital cover as soon as possible. You will not avoid the surcharge for the whole year as it can only be avoided for the days that you were covered but it will reduce the Medicare levy surcharge and you may benefit from the insurance cover.
Impact: If you are employed then your employer may not have withheld sufficient tax on your pay based on the ATO’s Pay-As-You-Go (PAYG) tax withholding tables. These tables are based on an ordinary year with periods of 52 pay weeks or 26 pay fortnights. Marginal tax rates increase as taxable income increases and your employer may not withhold enough tax. That means instead of getting a refund, you may have to pay a small amount of tax when you lodge your 2015/2016 tax return.
Practical tips: If peace of mind is the most important thing for you, then you should ask your employer to vary your PAYG withholding to cover the tax shortfall.
Centrelink entitlements/taxation and super concessions
Impact: Extra taxable income may impact various benefits, entitlements and tax offsets, such as family tax benefits, parental pay and super co-contributions.
Practical tips: In some cases, you can ask your employer to defer your salary payments to the next year (after 1 July 2016).
If you’re concerned you might be affected by receiving extra pay this year, please speak to us.