2018 Year End Superannuation Planning Guide
Concessional contributions cap
As of 1 July 2017 the concessional cap has reduced to $25,000 for all individuals. This includes amounts your employer may make as compulsory super and salary sacrifice contributions as well as any personal deductible contributions you may have made.
If you wish to maximise your contributions before June 30 make sure you talk to your professional advisor so that your salary sacrifice agreement with your employer allows the maximum to be salary sacrificed. Also ensure that all contributions are deposited with enough time so they are received by your fund before Friday 29 June 2018 as 30 June 2018 falls on a weekend.
If you are older than 65 you will need to meet a work test to contribute to super. 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. If you are older than 75 you are limited to receiving only superannuation guarantee (SG) payments or payments under an industrial award or agreement.
Claiming a tax deduction for personal superannuation contributions
From 1 July 2017, everyone who is eligible to make a contribution will be able to claim a tax deduction for personal superannuation contributions without needing to satisfy the 10% rule. However the concessional contribution cap of $25,000 applies to an individual’s combined personal deductible and employer contributions for the year.
To claim a deduction for personal superannuation contributions, action needs to be taken prior to the end of the next financial year or the end of the day on which the individual’s tax return is lodged, whichever occurs first. The member must notify the fund in writing of the amount they wish to claim as a deduction. The fund must also provide the member with letter acknowledging the receipt and treatment of the contribution.
You must be able to produce all relevant paperwork in order to claim the deduction.
Making after tax contributions to super
You can make after tax contributions (also known as Non-Concessional 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 $100,000, however, if you are under 65 years of age you can contribute up to $300,000 over a fixed three year period.
If you triggered the bring forward rule before 2016/17 but the full $540,000 was not contributed, you will be limited to a transitional bring forward cap.
Those with a Total Superannuation Balance (TSB) as at 30 June 2017 of between $1.4 million and $1.5 million will only be able to bring forward 2 years of after tax contributions (or $200,000). Balances of between $1.5 million and $1.6 million will only be able to make 1 year of after tax contributions (or $100,000). Finally, those members with balances of $1.6 million or greater will not be able to make after tax contributions past 1 July 2017. This is re-assessed each year based on 30 June balances.
Reduction of Division 293 threshold
Previously members with income and concessional super contributions in excess of $300,000 triggered a Division 293 assessment.
Effective 1 July 2017, the Government lowered the Division 293 income threshold to $250,000 for the 2017-18 and future financial years. A member with adjusted income and concessional super contributions, exceeding the $250,000 threshold will have an additional 15% tax imposed on the amount over the threshold up to the total amount of concessional contributions not exceeding their concessional contributions cap.
If you have made a voluntary after tax contribution, you may be eligible to receive a co-contribution from the Government if you are less than 71 years of age and earn less than $51,813.
The co-contribution is 50c for every $1 contributed up to a maximum of $500. The amount gradually reduces for those with income over $36,813 until it phases out completely at $51,813.
To be eligible to receive the co-contribution your Total Superannuation Balance (TSB) must be less than $1.6 million at 30 June 2017 and you must not have exceeded your non-concessional contribution cap for the year.
Low income super tax offset contribution
The Government introduced a low income superannuation tax offset (LISTO), which replaces the low income superannuation contribution (LISC) policy that was repealed on 1 July 2017.
Effective 1 July 2017, eligible members with an adjusted taxable income up to $37,000 will receive a LISTO contribution to their super fund. The LISTO contribution will be equal to 15% of their total concessional (pre-tax) super contributions for an income year, capped at $500.
If your spouse has an adjusted taxable income of less than $37,000 and you make a non-concessional contribution of up to $3,000 to their superannuation fund, a tax offset of 18% is available to you. Note that these contributions count towards your spouse’s non-concessional cap.
The tax offset gradually reduces for income above $37,000 and completely phases out when your spouse’s income reaches $40,000.
Beware of excess contributions tax
Anyone making large superannuation contributions should exercise extreme care for any type of contributions to avoid excess contributions penalties. This can apply to any tax deductible and non-tax deductible contributions made to super. Making sure you do not exceed the contribution caps will save you both the money and time of dealing with excess contributions tax.
Reportable employer superannuation contributions (RESCs)
RESCs must be shown on an employee’s PAYG payment summary.
Include all salary sacrifice superannuation contributions which an employee has negotiated to be withheld from their gross ‘pre-tax’ salary.
Exclude the compulsory 9.50% Superannuation Guarantee (SG) amount.
Include contributions by directors of companies who have superannuation paid on their behalf, but only the amount over and above the 9.50% of their salary.
Ensure that if an employee or director sacrifices 100% of their salary as superannuation contributions, they must still receive a PAYG Payment Summary showing the RESC amount even though no salary may have been paid or PAYG withheld during the year.
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. More SMSF’s will have taxable income from 1 July 2017 due to the cap on the amount that can be in tax free pension phase.
Drawing superannuation pensions
If you are in pension phase make sure the minimum pension has been paid to you for this financial year. If you do not take your minimum pension, the pension account is to cease and the assets that supporting this pension are deemed to not be in retirement phase for the whole year meaning your fund will lose its tax exemption on earnings.
Drawing superannuation lump sums
Once you reach 60 years of age all lump sums from superannuation 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 superannuation benefit. Currently no tax is payable on taxable amounts of up to $200,000, in total, you receive prior to age 60. There may be opportunities for use of partial commutations/lump sums from pension accounts for those that are withdrawing greater than their minimum pension.
If you are eligible to draw amounts from superannuation you may like to defer receiving the amount until after reaching the age of 60 or until a later financial year when you may end up paying a lower rate of tax.
$1.6 million transfer balance cap (TBC)
Effective 1 July 2017, the Government introduced a $1.6 million cap on the total amount that can be transferred into the tax free retirement phase for account-based pensions.
The general transfer balance cap will be indexed in $100,000 increments in line with CPI. Indexation will be applied proportionally where a member is a retirement phase income stream recipient, but has not at any time met or exceeded their cap.
Additional reporting obligations for SMSFs
In line with the introduction of the transfer balance cap (TBC), the Australian Taxation Office (ATO) has introduced new reporting obligations for Self Managed Superannuation Funds (SMSFs).
SMSFs are required to report any time that one of the members has had an event which impacts their Transfer Balance Account (TBA), such as commencement of a new income stream, commutations of existing pensions, cessation of a superannuation income stream or structured settlement contributions received on or after 1 July 2017. Additionally, all funds that have existing income streams at 30 June 2017 need to report these by 1 July 2018.
Generally, these events must be reported to the ATO quarterly – within 28 days of the end of the quarter in which the event occurred. The ATO have granted a concession to funds that only have pension members with total superannuation balances (TSB) of less than $1million, allowing them to report annually at that same time that their annual return is lodged.
The reporting is done via a Transfer Balance Account Report (TBAR) which must be submitted either electronically or via paper form to the ATO. Failure to lodge the form by the required date could mean that the ATO will issue a ‘failure to lodge’ penalty.
As there are tax consequences for exceeding the TBC it is beneficial to ensure activities that impact an individual’s TBA are reported to the ATO as soon as possible.
Transition to retirement income streams (TRIS) losing their tax-exempt earnings status
Effective 1 July 2017, the Government removed the tax-exempt status of earnings from assets that support a TRIS that is not in the retirement phase. Earnings from assets supporting a non-retirement phase TRIS will be taxed at 15% regardless of the date the TRIS commenced.
Members can no longer treat super income stream payments as lump sums for taxation purposes.
The intent of this change is to ensure that TRIS are not accessed primarily for tax purposes but for supporting members who remain in the workforce.
Carry-forward concessional contributions of unused caps over five years
From 1 July 2018, members will be able to make 'carry-forward' concessional super contributions if they have a total superannuation balance of less than $500,000. They will be able to access their unused concessional contributions cap space on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
The first year in which you can access unused concessional contributions is the 2019–20 financial year.
How can we help?
If you have any questions, require assistance or would like further clarification with any aspect of your end of year superannuation tax planning, please contact our Superannuation Partner, Clive Todd on 07 3218 3900 to discuss your particular requirements in more detail.
Glossary of Superannuation Terms
CC – Concessional Contributions: Employer and personal contributions that are claimed as a tax deduction.
NCC – Non-Concessional Contributions: Personal contributions for which no tax deduction is claimed.
TBC – Transfer Balance Cap: Limit from 1 July 2017 on the total amount of superannuation that can be transferred into retirement (or pension) phase. Currently $1.6 million.
TSB – Total Superannuation Balance: The value of total superannuation interests on a given date. Used to work out eligibility to make certain contributions.
TBA – Transfer Balance Account: an account maintained by the Australian Taxation Office that tracks superannuation that moves in and out of retirement phase so that Transfer Balance Cap and Total Superannuation Balance amounts can be monitored.
TBAR – Transfer Balance Account Report: Report that advises ATO on Transfer Balance Account movements.
TRIS – Transition to Retirement Income Stream (also called TTR): Enables people who have reached their preservation age to access their superannuation without having to retire or leave work
LISTO – Low Income Superannuation Tax Offset: A contribution that is equal to 15% of total concessional (pre-tax) super contributions for an income year, capped at $500. Applies to eligible members with an adjusted taxable income up to $37,000.
RESC – Reportable Employer Superannuation Contributions: Additional superannuation contributions your employer has made on your behalf over the mandatory 9.5% superannuation guarantee.
* This is not a recommendation to make a financial investment, but a reflection of the tax attributes of such and accordingly should not be regarded as financial advice. Always seek professional advice from an AFS license holder before investing in any financial products
© Hanrick Curran 2018