Given the impending July 2017 superannuation changes, being on top of your end of financial year planning is as important as it has ever been. 2017 presents a unique opportunity to maximise your superannuation entitlements using existing limits, caps and strategies. Click the icon to download:
Concessional contributions cap
For anyone who was under 49 years of age on 30 June 2016 the maximum amount of concessional (tax deductible) contributions that can be made to superannuation without penalty is $30,000. However, for anyone who is at least 49 years of age or older on 30 June 2016 the maximum amount is $35,000. 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 qualify.
From 1 July 2017, this cap will fall to $25,000 for everyone, so ensure any reserving and salary sacrifice strategies are appropriate. 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 30 June 2017.
If you are older than 65 you will 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. 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
If you are self-employed, an investor or in receipt of a pension and receive less than 10% of your income, fringe benefits and other related payments as an employee you may be eligible for a tax deduction for personal contributions to superannuation. If you intend to claim a tax deduction make sure you are eligible to claim a deduction and seek advice if you are 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 or the end of the day on which the individual tax return was lodged, whichever occurs first. You must be able to produce all relevant paperwork in order to claim the deduction.
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.
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 are under 65 years of age you can contribute up to $540,000 over a fixed three year period.
From 1 July 2017, this cap will fall to $100,000 per annum with a $300,000 fixed year bring forward. This also means 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 of $1.6 million or more will not be able to make after tax contributions past 1 July 2017.
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 $51,021.
The amount received is 50c for every $1 contributed up to a maximum of $500. The amount gradually reduces for those with income over $36,021 until it phases out completely at $51,021.
If your spouse has an adjusted taxable income of less than $13,800 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.
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.
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. No tax currently is payable on taxable amounts of up to $195,000, in total, you receive prior to age 60.
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.
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.
Preparing for the $1.6 million transfer balance cap and capital gains tax (CGT) relief
Be aware of the new $1.6 million transfer balance cap that will limit the amount you can keep in the pension phase of superannuation from 1 July 2017. This new cap will limit the assets you can have supporting superannuation pensions to $1.6 million.
It is essential that your plan to comply with the transfer balance cap and all relevant documentation is formulated by 30 June 2017.
Transition to retirement income streams losing their tax-exempt earnings status
From 1 July 2017, superannuation fund members will lose the tax-exempt treatment of earnings on assets that support a transition to retirement pension (TTR). Members will still be able to start new or maintain existing TTRs, but they should be reviewed before 30 June in accordance with their SMSF’s objective.
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.
Click here for a printable PDF of this guide.
* 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 2017
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.