With the end of financial year fast approaching, here are some super year-end planning tips to help you understand what you could do in relation to your super before and after 30 June 2015.
Increased tax deductible contributions cap for anyone 50 and over
For anyone who was under 49 on 30 June 2014, the maximum amount of tax deductible contributions that can be made to superannuation without penalty is $30,000.
However, for anyone who was at least 49 or older on 30 June 2014, the maximum amount is $35,000. This includes amounts your employer may make as salary sacrifice, Superannuation Guarantee (SG) or amounts you make as personal deductible contributions, if you qualify.
If you wish to maximise your contributions before 30 June, check with your Westlawn Business Services Accountant that your salary sacrifice agreement with your employer allows the maximum to be salary sacrificed.
If you’re older than 65, you’ll need to meet a work test to contribute to super in most cases. You need to work for at least 40 hours during 30 consecutive days at any time during this financial year to make tax deductible and non-deductible contributions to super.
Claiming a tax deduction for personal super contributions
If you’re self-employed, an investor, in receipt of a pension and receive less than 10% of your income, fringe benefits and other related payments from employment, you may qualify for a personal tax deduction to superannuation.
If you intend to claim a tax deduction, make sure you are eligible and seek advice if unsure. You need to notify the fund of the amount you wish to claim as a deduction before the end of the next financial year, that is, before 30 June 2016.
Making after tax contributions to super
You can make after-tax contributions to super which could come from:
- Your personal savings
- Transferring personal investments
- An inheritance, or
- From the sale of investments.
This financial year, the maximum personal after-tax contribution is $180,000, however, if you’re under 65 you can contribute up to $540,000 over a fixed 3-year period. This allows you to make substantial contributions to super and build up your retirement savings.
The way it works is that if you’re under 65 and make total after-tax contributions of more than $180,000 in a financial year, the bring-forward rule is triggered. This allows you to make non-deductible contributions of up to $540,000 in total over a fixed 3-year period commencing in the year in which you contributed more than $180,000.
However, if you triggered the bring-forward rule in 2012-13 or 2013-14, you will be limited to $450,000 of bring-forward contributions as the post-tax contribution limit was $150,000 in 2013-14.
Beware of excess contributions tax
Anyone making large super contributions should exercise caution to avoid excess contributions penalties. This can apply to any tax deductible and non-tax deductible contributions made to super.
Even though both excess concessional (tax-deductible) and excess non-concessional (post-tax) contributions can be refunded and taxed at your personal tax rate instead of at a penalty rate, making sure you do not exceed the contribution caps will save you both time and money.
If your adjusted income is less than $49,488 you may like to take advantage of the government co-contribution. You can do this by making after tax (non-concessional) super contributions before the end of the financial year.
For every dollar of eligible contributions, the government contributes 50 cents to your super up to a maximum government co-contribution of $500.
For 2014/15, the maximum government co-contribution is payable for individuals on incomes at or below $34,488 and reduces by 3.33 cents for each dollar above this, cutting out completely once total adjusted income for the year exceeds $49,488.
Drawing superannuation pensions
If you’re in pension phase, make sure the minimum pension has been paid to you for this financial year. By not receiving the required minimum pension, any income earned on your pension investments in your super fund will be taxed at 15% rather than being tax free if the pension rules are met by the fund.
Drawing superannuation lump sums
Once you reach 60, all lump sums from super are tax free. However, before age 60 any lump sums that include a taxable component can be taxable. The taxable component includes the tax deductible contributions plus any income that has accumulated on your super benefit. No tax is payable on taxable amounts of up to $185,000, in total, you receive prior to age 60. This amount is indexed annually.
If you’re eligible to draw amounts from superannuation you may like to defer receiving the amount until after reaching age 60 or until a later financial year when you may end up paying a lower rate of tax.
SMSF fund expenses
For SMSF members in the accumulation phase, tax deductions for expenses are usually not significant, but it’s important to ensure expenses are actually incurred or paid before 30 June to be deductible in the current financial year.
For advice on year end super tax planning, contact your Westlawn Business Services Accountant.
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23 June 2015
Westlawn Business Services Pty Ltd provides this information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers.
Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.