Written by Hudson Adviser Ivan Fletcher
Tabled below is a list of Super strategies for consideration before 30 June.
- Government's co-contribution scheme (do you qualify)?
- Reducing Taxable Income with Additional CONCESSIONAL super contributions
- Spouse contributions Rebate
- Making Large NON-CONCESSIONAL Contributions
- Re-Contribution Strategy
- Rebalance Super Levels between Spouses (re-contribution Strategy)
- Super splitting (to spouse only)
DO YOU QUALIFY FOR THE GOVERNMENT'S CO-CONTRIBUTION SCHEME?
- Only personal 'non-concessional' contributions qualify (i.e. not tax deductible)
- The maximum matching rate is 50 cents for every $1 of eligible personal super contributions.
- The maximum benefit this year is $500 for a $1,000 personal contribution
- The maximum benefit applies if your income is under $38,564.
- The benefit cuts out if your income is above $53,564.
You will be eligible for the super co-contribution if you can answer yes to all of the following:
- you made one or more eligible personal super (non-concessional) contributions to your super account during the financial year
- you pass the two income tests described below
- Income Threshold Test - your income (including fringe benefits, and salary sacrifice, etc) is under the higher threshold of $53,564
- 10% Eligible Income test - 10% or more of your total income must come from employment-related activities, carrying on a business, or a combination of both.
- your Total Super Balance (including Pension accounts) is less than $1,600,000 at the beginning of the financial year).
- you are less than 71 years old at the end of the financial year
- you did not hold a temporary visa at any time during the financial year (unless you are a New Zealand citizen or it was a prescribed visa)
- you lodged your tax return for the relevant financial year.
How to calculate and maximise your benefit.
This is made very easy for you by the following Government Website which calculates your benefit for you and how much you need to put in. Remember to include any fringe benefits and any Salary sacrificed income in your income figure as well as any other taxable income.
The amount you put in yourself as a personal non-concessional contribution needs to be double the amount of your potential co-contribution benefit.
Full Benefit - If your income is under the lower threshold of $38,564 you can qualify for the maximum benefit of $500 co-contribution. You would need to put in double the con-contribution amount yourself (i.e. $1,000) as a personal contribution to gain the benefit.
Partial Benefit - If your income is between the two thresholds ($38,564 and $53,564), you may qualify for at least a partial government co-contribution. The benefit reduces from the maximum benefit of $500 by 3.33 cents for every dollar you earn over $38,564 until it cuts out at $53,564.
Example – If your income (for the year) is $45,000, your maximum benefit is $285. You would therefore need to contribute $570 to qualify for your full entitlement.
- Make sure your contribution is a personal ‘non concessional’ contribution. You cannot claim a tax deduction for this contribution.
- Note this to your tax agent when completing your tax return.
- Even if you borrowed the money from say a home loan at 3.0% to fund a contribution of $1000, the interest cost for one year would be $30 compared to a maximum potential benefit of $500. You could then pay the loan off over the next year.
- If you retired this year and your income is lower than normal or if you are now only working at more modest levels than you once did, this could also apply to you.
This is FREE MONEY for your super. If you have been saving to invest long term anyway then this is a no brainer.
REDUCING TAXABLE INCOME WITH PERSONAL SUPER CONTRIBUTIONS
If your taxable income is in the higher tax brackets (at least above $37,000 taxable income) you may wish to consider some additional personal contributions (funded from personal accounts) which can may be classified as concessional allowing for a tax deduction in your personal tax return.
- under age 65 or working (between 65 and 74 and satisfies the work test of gainful employment of 40 hours in 30 days) and
- has room left in their concessional contributions cap ($25,000) and
- has enough assessable income to be able to benefit from the tax deduction.
- Total Concessional CAP is $25,000 p.a.
- Deduct all other Concessional Contributions (Employer or salary sacrifice contributions (example $10,000)
- The reminder ($15,000 per above example) is the available amount for personal Contribution (that you can claim as a deduction)
Personal contributions can be done as one lump sum towards the end of the financial year (or via several deposits as funds are available). The Contribution(s) must however be received by your super fund by 30 June (if it arrives on 1 July it becomes part of next years figures).
- make a personal contribution to a complying superannuation fund (must be received by the super fund by 30 June).
- submit a valid Notice of intent to claim a deduction for personal super contributions, in the approved form, to the superannuation fund trustee within required
A Notice of intent to claim a deduction for personal super contributions will not be valid unless it is submitted in writing to the fund trustee by the earlier of:
- the end of the day the taxpayer lodges their income tax return for the income year in which the contribution was made or
- the end of the next income year following the year of contribution.
- Receive Confirmation from the Super Fund trustee that the valid notice of intent has been received.
- Use the above confirmation back from your Super fund as evidence to claim a ‘personal’ tax deduction in your tax return.
WARNING - The maximum allowable in Concessional Contributions is $25,000 per person (inclusive of existing employer and salary sacrifice contributions).
Tip 1 – Make sure your accountant is aware of any personal concessional contributions you have made – pointless exercise if you don’t actually claim the deductions – your super fund should provide a summary statement. You will have to complete a form “intention to Claim a Tax Deduction” to advise your super fund you intend to claim the tax deductions.
Trap 1. Make sure you account for your employers ‘Super Guarantee’ (SG) contributions in your calculations including salary sacrifice.
Trap 2 - Make sure you account for any life insurance premiums that may be structured under a super policy.
Trap 3 – Check Timing - Your pay slip does not necessarily match the timing of when the super fund receives employer or sacrificed contributions, so if you are running up to your Concessional CAP, be sure to check in with your super fund on the count so far (your pay slip may mislead you (for e.g. Last years June contribution may have arrived in July and therefore counted in this year’s Cap).
Check your contribution classifications are correct
Contributions received by your super fund will be classified as 'concessional' (tax deductible to the payer) or 'non-concessional' (not tax deductible).
If your contributions have been incorrectly classified as ‘non-concessional’, it can prevent your accountant from claiming the deductions. This is an easy and common mistake.
SPOUSE CONTRIBUTIONS REBATEIf your spouse’s income is under $37,000, you can make a contribution of up to $3,000 and claim up to a maximum 18% rebate ($540 maximum). This phases out to nil once the receiving spouse’s income is above $40,000. In assessing Spousal income, you must also include any reportable Fringe Benefits or additional contributions (or salary sacrifice) mandated above Super Guarantee (SG) levels.
MAKING LARGE NON-CONCESSIONAL CONTRIBUTIONS
If you have been considering making a large NON-CONCESSIONAL contribution to super with cash you are sitting on or about to receive from sale of investment assets or a windfall gain such as an inheritance, you can make a personal non-concessional contribution up to $100,000 per annum per person. You first must ensure you qualify to make a contribution (which requires a WORK TEST if between age 65 and 74)
For those with enough cash to consider the 3 year bring forward provision (applicable only to those under age 65), you can contribute up to $300,000.
WARNING – IF you exceed the Maximum / CAP for non-concessional contributions, the penalty is heavy, with the excess being taxed at the highest marginal tax bracket (+ medicare levy).
RE-CONTRIBUTION STRATEGYThis strategy allows you to reduce the amount of ‘Taxable Component’ applicable to your super balance by firstly withdrawing a Lump Sum from Super (with a high ’taxable’ component). This is dependant upon you being above preservation age and meeting a condition of release from your super. Secondly the funds are contributed back to super as a non-concessional ‘tax free’ contribution. This strategy can be used to maximum effect by utilising the 3 year bring forward provision (under age 65 only) allowing up to $300,000 to be withdrawn and re-contributed back to super. It is most commonly applicable to persons who have retired before 65.
This strategy could benefit your children in the form of reduced taxes upon ultimate inheritance of any super balance or in the case of retirees under age 60, reduce the assessable amount of your pension income. There are strict criteria to qualify for this strategy in terms of both the withdrawal and the re-contribution.
Caution: The qualifications for this strategy are specific and complex and the tax consequences/PENALTIES can be significant (especially under age 60). It is recommended this strategy be discussed and implemented through an adviser.
REBALANCE SUPER LEVELS BETWEEN SPOUSESThis strategy (much like the re-contribution strategy above) will be dependant upon your capacity to qualify for ‘unpreserved’ Lump Sum withdrawals (free of tax) and your spouse’s qualification to take advantage of the ‘3 year bring forward provision’.
The benefits are two-fold:
(a) increasing the tax free component of your collective super balances (benefiting potential future children beneficiaries with reduced tax).
(b) lowering your current Super balance further under the new $1.6 Million CAP allowing further contributions to Super in the coming years.
(c ) sheltering assets to a younger spouse for Centrelink benefits.
Caution: The qualifications for this strategy are specific and complex and it is recommended that they be discussed and implemented through an adviser.
SUPER SPLITTING (TO SPOUSE ONLY)
Super splitting is the process of rolling over your previous year’s “Concessional” contributions (less the 15% tax) to your spouse. Once 30 June 2020 arrives, the window for rolling over last years’ 2018/19 contributions to your spouse will close.
Reasons why you would consider this:
- Useful strategy in levelling out super balances between spouses as a natural hedge against legislative risk.
- Assist in keeping a super balance under various thresholds to support other contribution strategies in future years (eg keeping balance under $500,000 to support the carry forward of unused Concessional CAPS from 2018/19 year onwards).
- Spousal age gap:
- Shelter assets to younger spouse (for Centrelink benefits), or
- To increase accessibility of super by splitting to the older spouse – closest to preservation age. Similarly super splitting to an older spouse may allow you to get the assets into the tax-free arena of Allocated Pensions (no tax on earnings of the asset base).