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5 super actions to take before the end of the financial year

Paul Rickard
Thursday, May 10, 2018

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After the savaging the super system took in last year’s Budget, it was reassuring to note that there were no material changes to super in Tuesday’s Budget. But a wash up from last year’s changes is a couple of positive measures that can still be actioned before 30 June. The biggest of these is allowing anyone to claim a tax deduction for personal super contributions.

So, with the end of the financial year only 51 sleeps away (who is counting?), here are 5 essential actions to check off before 30 June. Whether it be by making additional contributions and claiming a tax deduction, checking whether you have paid yourself enough pension, getting the Government to cough up a co-contribution or claiming that tax deduction for your fund, these actions will help you get the most out of the system.

1.      Can you claim a tax deduction by making additional contributions to super?

There are two caps that limit how much money you can contribute into super. A cap on concessional (or pre-tax) contributions of $25,000, and a cap on non-concessional (or post tax) contributions of $100,000.

Concessional contributions include your employer’s compulsory super guarantee contribution of 9.5% and any salary sacrifice contributions you elect to make. They are called “concessional” contributions because they are a tax deductible expense for your employer. 

There is also a third form of concessional contribution which is a personal contribution you make and claim a tax deduction for. Until this financial year, the ‘10% rule’ meant that only self-employed persons who received less than 10% of their income in wages or salary could claim this deduction. This rule has now been scrapped so that anyone can claim this tax deduction. 

There are two important caveats. Firstly, you must be eligible to make a super contribution. If you are under 65, or aged between 65 and 74 and pass the work test, you will qualify (there are some particular rules for the under 18s). Secondly, you aren’t allowed to exceed the $25,000 cap on concessional contributions. 

Let’s take an example. Tom is 45 and earning a gross salary of $100,000. His employer contributes $9,500 to his super, and he has elected to salary sacrifice a further $5,000. Potentially, prior to 30 June, Tom can contribute a further $10,500 to super and claim this amount as a tax deduction. He will do this when he completes his 17/18 tax return. 

Tom will need to notify his super fund that this is a contribution he is claiming a tax deduction for. He does this by using a standard ATO form or online with his super fund. Technically, he will have until the earlier of when he lodges his tax return or 30 June 2019 to do this.

Non concessional contributions, which are personal super contributions made from your own monies and which you don’t claim a tax deduction for, are capped at $100,000 each year. Again, you must be under 65, or if aged between 65 and 74, meet the work test to qualify. Your total super balance (as at 1 July 2017) must also be less than $1,6000,000. 

If you are under age 65 (technically aged 64 or less at 1 July 2017), then you can access the “bring-forward ruler” which allows you to make up to three-years’ worth of contributions or $300,000 in one go. A couple could potentially get $600,000 into super. Ability to access this is further limited by your total super balance (under $1,4m full amount; $1.4m to $1.5m $200,000; $1.5m to $1.6m $100,000). 

2.      Can you or a family member access the Government Co-Contribution?

There aren’t too many free handouts from Government. The government super co-contribution remains one of the few that is available – so it seems silly not to try to access it. If eligible, the Government will contribute up to $500 if a personal super contribution of $1,000 is made. 

The Government matches a personal contribution on a 50% basis. This means that for each dollar of personal contribution made, the Government makes a co-contribution of $0.50, up to an overall maximum contribution by the Government of $500.

To be eligible, there are 3 tests. The person’s taxable income must be under $36,813 (it starts to phase out from this level, cutting out completely at $51,813), they must be under 71 at the end of the year, and critically, at least 10% of this income must be earned from an employment source. Also, they can’t have exceeded the non-concessional cap or have a total super balance over $1.6 million. 

While you may not qualify for the co-contribution, this can be a great way to boost a spouse’s super, or even an adult child. For example, if your kids are university students and doing some part time work, you could potentially make a personal contribution of $1,000 on their behalf – and the Government will chip in $500! 

3.      Can you claim a tax offset for super contributions on behalf of your spouse?

While this tax offset (rebate) has been around for years, the Government decided in last year’s budget to make it a whole lot more accessible by raising the income test threshold to $37,000 (it was previously $10,800). So, if you have a spouse who earns less than $37,000 and you make a spouse super contribution of $3,000, you can claim a personal tax offset of 18% of the contribution, up to a maximum of $540. 

The tax offset phases out when your spouse earns $40,000 or more. Effectively, your maximum rebatable contribution of $3,000 is reduced on a $ for $ basis for each $ of income that your spouse earns over $37,000. The offset is then 18% of the lesser of the actual super contribution or the reduced maximum rebatable contribution. 

Your spouse’s income includes their assessable income, reportable fringe benefits and any reportable employer super contributions such as salary sacrifice. Similar to the rules for the co-contribution, you cannot claim the offset if your spouse exceeded their non-concessional cap or their total super balance was more than $1.6 million.  

4.      Pensions – have you paid enough?

If you are taking an account based pension, then you must take at least the minimum payment. If you don’t, then your fund will potentially be taxed at 15% on its investment earnings, rather than the special rate of 0% that applies to assets that are supporting the payment of a super pension. 

The minimum payment is based on your age and calculated on the balance of your super assets at the start of the financial year (1 July). The age based factors are shown below                      

Minimum Pension Factors

 

For example, if you were aged 66 on 1 July 2017 and had a balance of $500,000, your minimum payment is 5% of $500,000 or $25,000. You can take your pension at any time or in any amount(s), but your aggregate drawdown must exceed the minimum amount and be taken by 30 June 2018. 

If you commenced a pension mid-year, the minimum amount is pro-rated according to the number of days remaining until the end of the financial year, and calculated on your balance when you commenced the pension. 

5.      If you have a SMSF, do you know the tax deductions your fund could claim?

There are potentially several tax deductions your SMSF could claim. Of course, your fund does have to be in accumulation phase and paying tax. If your fund is in pension, then you aren’t paying any tax and so there is no assessable income to be offset. Where a fund has one member in pension and one member in accumulation, or a member has both an accumulation and a pension account, then you will pro-rata the deduction according to the respective balances of the accumulation account and the pension account. Your accountant or actuary will advise you of the percentage that can be claimed. 

Some of the expenses that are deductible include:

  • the ATO Supervisory Levy;
  • insurance premiums for death and disability policies;
  • accounting and auditing fees;
  • costs of updating a trust deed to comply with the SIS Act;
  • investment adviser fees;
  • subscriptions to reports such as the Switzer Report;
  • administrative expenses such as bank fees, filing fees etc; and
  • if you have taken out a limited recourse borrowing arrangement to purchase an asset that produces assessable income, the interest cost. 

Finally, contributions must be received and banked by your Fund by 30 June to count. This year, this day falls on a Sunday. Further, some payment systems take a day or more to clear, so if you want your contributions to count, you really need to act by Wednesday 26 June.  

Published: Thursday, May 10, 2018


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