EOFY Superannuation Tax Strategies
At this End of the Financial Year, there are a number of smart strategies you could consider to effectively reduce your individual tax liability.
Superannuation is a sometimes complicated topic, with ongoing legislation changes, we encourage you to discuss these ideas with your PMW Advisor before making any decisions.
Contact us for more information or to discuss you financial needs 02 6362 1966.
Personal tax-deductible contributions
The rules have been relaxed and you’re now able to make additional deductible contributions to bring you up to the annual cap of $25,000.
Prior to 2017-18, only people who were substantially self-employed or earning passive income could claim a tax deduction for superannuation contributions.
From 2017-18, this requirement has been removed so that all eligible contributors can claim a tax deduction for their personal contributions. This means that employees who were previously unable to make a personal tax-deductible contribution may now be eligible.
While still subject to the $25,000 concessional contributions cap, this strategy may prove timely if you have made a considerable capital gain from the sale of a property or shares – as your deductible contribution to your super fund may help to offset your assessable capital gain. Not only could it reduce your marginal tax rate, it may also boost your super balance for retirement.
Note that if you are not able to claim your super contributions as a tax deduction (for example, your income for the year is too low), they will be treated as after-tax (non-concessional) contributions.
Take advantage of the government co-contribution
If you’re in a low income bracket (if your total income is $36,813 pa or less) and you make an after-tax contribution to super, the Government will co-contribute 50% of the total of your after tax contribution into your super. For example, if you make a $1,000 after tax contribution towards your super, the Government will contribute $500 to your super.
The co-contribution is calculated as 50% of your after tax contribution, but the maximum $500 government co-contribution also reduces by 3.33 cents for every dollar you earn over $36,813 pa and ceases once your total income reaches $51,813 pa.
When determining eligibility for the Government co-contribution, earnings that are salary sacrificed to super and reportable fringe benefits come under the definition of total income. If you fit within the income thresholds outlined above, and satisfy some other conditions, contributing to your super from your after-tax salary before the end of the financial year may be a great way to top up your super, and get an extra boost from the Government.
Your financial adviser can give you the latest updates and more information on this opportunity.
Please note: Total income equals assessable income plus reportable fringe benefits plus reportable employer super contributions, less business deduction (other than for work related expenses or personal super contributions).
Split super contributions with your spouse
If you have an imbalance in super between you and your spouse, it’s possible and also advantageous for you to consider splitting your superannuation contributions.
Super splitting is not offered by all funds, so you will need to check whether your fund offers this feature and discuss the benefits with you PMW Advisor.
If you have a spouse, you are permitted to transfer certain super contributions from the previous financial year over to the super account of your partner. If the receiving spouse is over preservation age at the time of the split request, he or she must declare that they are not retired. Splits cannot be done once the receiving spouse turns 65. You can do this every year, once the financial year has ended. Up to 85% of taxable (concessional) contributions such as SG, salary sacrifice and personal tax-deductible contributions made to super can be transferred.
There are several reasons for considering splitting super with your spouse:
There may be potential tax advantages to withdrawing the money from two super accounts rather than one (between preservation age and age 59).
- Transferring contributions from the younger spouse to the older spouse could enable you to access more retirement money earlier.
- Transferring money from the older spouse to the younger spouse could enable the older spouse to receive more Age Pension by delaying the date at which their super becomes an assessable asset.
- Splitting superannuation monies does not count towards the receiving spouse’s contributions cap. The original contribution made counts towards the members’ concessional cap.
- To help equalise balances between you and your spouse. From 1 July 2017, a $1.6 million ‘transfer balance cap’ applies to limit the total amount of super savings you can use to commence retirement phase income streams (where earnings on assets are tax free). Because this cap applies on an individual basis, equalising super balances between members of a couple can ensure that both members stay below this cap.
The benefits of spouse contribution tax offsets
Another potential tax concession is a spouse contribution tax offset. This strategy may be available if you make after tax contributions directly to your spouse’s super account – these are known as eligible spouse contributions. To take advantage of this strategy, your spouse will need to be under age 65, or aged 65 to 69 and have satisfied a work test during the financial year.
You can open a super account in your spouse’s name and make contributions to that account from your after-tax pay. You can also make these contributions to your spouse’s existing super account. If your spouse’s assessable income, reportable employer super contributions and reportable fringe benefits are under $37,000 pa, you will receive an 18% tax offset on the first $3,000 you contribute on their behalf, up to $540 pa. The offset operates on a sliding scale and phases out to zero once their income exceeds $40,000 pa.
A word on contributions caps
It’s worth noting that when there are a number of caps that could present opportunities to you, particularly if you are close to retirement or underfunded for your retirement years. Contributions of a non-deductible nature up to $300,000 can be made in the right circumstances.
When considering any super strategy, it’s important to assess how much you are contributing to super in any one year. The Government has set annual limits – known as contributions caps.
The contributions caps for the 2017-18 financial year are:
- $25,000 (indexed) for pre-tax (concessional) contributions, regardless of age.
- $100,000 for after-tax (non-concessional) contributions, or $300,000 over a three-year period if you are under 65 any time during the financial year you make the contribution.
- Your non-concessional cap reduces to Nil once your total super balance (just before the start of the year) is $1.6 million or more.
- The cap you have available under the bring forward rule will reduce once your total super balance (just before the start of the year) is $1.4 million or more.
- If you triggered a bring forward rule in 2015-16 or 2016-17 (the bring forward cap during those years was $540,000) but did not use all of your cap by 30 June 2017, transitional rules reduce the remaining cap you have available.
In order to make voluntary super contributions, at the time of the contribution, you must be:
- Under age 65
- Aged 65 to 74 and have been employed for gain or reward for 40 hours in a 30 consecutive day period during the financial year –
- This includes up to 28 days after the end of the month in which you turn 75
- Spouse contributions cannot be made where the receiving spouse is aged 70 or over.
Voluntary contributions generally cannot be made once you have reached age 75.
Talk to your PMW Advisor, we can help simplify your end of financial year preparations and ensure you maximise the tax benefits.
Call us 02 6362 1966.
Please note, the information included here is general advice and does not take into account your individual circumstances, financial situation or needs and you should always seek independent advice from one of the Certified Financial Advisors or Registered Tax Agents at Pigot Miller Wilson before implementing any superannuation or tax strategies. Information in this article is based on current regulatory requirements and laws, as at 12 April 2018, which may be subject to change.