Some opportunities to grow your super and retire with more may be available from 1 July 2017 and in future financial years.
Opportunities may be available from 1 July 2017 if you:
- Are an employee
- Have a low income spouse
- Have a spouse and have (or are likely to have) more than $1.6 million in super, or
- Have reached your ‘preservation age’ and would like some of your super to be paid to financially independent adult children in the event of your death.
Personal deductible contributions for employees as well
Prior to 1 July 2017, if you earned more than 10% of your income from eligible employment, you could not make personal deductible super contributions (PDCs).
These are super contributions that are made personally (not by an employer) which can be claimed as a tax deduction to reduce your assessable income and income tax payable.
Like salary sacrifice, they are concessionally taxed in the super fund at a maximum rate of 15% (or 30% if your income from certain sources and concessional contributions are over $250,000 in 2017/18).
With the removal of the ‘10% test’ it is now possible to make PDCs regardless of your employment status.
This new opportunity may appeal if:
- Your employer doesn’t offer salary sacrifice
- You receive a bonus or redundancy payment you would like to contribute to super but you don’t have a valid salary sacrifice agreement in place, or
- You are a resident for tax purposes, are working overseas for a foreign employer and your employer can’t or won’t contribute to an Australian super fund.
Even if you are eligible to make salary sacrifice contributions, you may want to consider switching to making PDCs or opt for a combination of both. The best approach for you will depend on a range of factors.
For example, you may be better off making PDCs if salary sacrificing reduces your entitlement to other benefits, such as leave loading, holiday pay and Super Guarantee contributions.
Also, with PDCs, the entire contribution can be made (and the deduction amount determined) at the end of the financial year when your cashflow and tax position is clearer.
Make spouse super contributions
A tax offset of up to $540 is available if you contribute to your spouse’s super account and they earn up to $40,000 (previously $13,800). It may therefore be worthwhile re-considering spouse super contributions if your spouse is a lower income earner.
Manage caps on super pensions
If you have a spouse and one of you has (or is likely to have) more than $1.6 million3 in super, there are some strategies you could use to ‘equalise’ super benefits and use more money as a couple to start tax-effective retirement pensions.
One approach is to split up to 85% of your previous financial year’s concessional contributions with your less superannuated spouse. Concessional contributions include super guarantee, salary sacrifice and personal deductible contributions, as well as certain other amounts.
Another option, if you have reached your ‘preservation age’4 and permanently retired (or met another ‘condition of release’), is to cash-out a portion of your super and arrange for the money to be contributed into your spouse’s super account.
If you can access your super5, but are still eligible to make super contributions6, there is a way you could reduce the tax that would be payable on your super by your financially independent adult children if you pass away. It involves:
- Cashing out some of your superannuation, which may include an amount from the ‘taxable component’ (which would be taxed in the hands of your adult children at up to 17%7), and
- Making a non-concessional contribution back into your fund. A non-concessional contribution forms part of the tax-free component (on which no tax would be payable by any of your superannuation beneficiaries).
While this strategy is not new, it may be more attractive now that ’anti-detriment’ amounts are no longer payable on the taxable component of a superannuation benefit when a member dies on or after 1 July 2017.
If you are under 60, depending on how much you withdraw and what, tax may be payable. It is important that you seek advice to understand how this will impact you before you make a withdrawal.