Most contribution plans should be executed by June 30, a critical timeslot in any financial calendar. Now that the COVID-19 panic is subsiding and life begins to normalise somewhat, you may have time to consider your plans for the fast-approaching deadline. Today I focus on an overview of the end of financial year super contributions and key considerations should they be of interest.
Concessional contributions are your regular tax-deductible contributions with a limit of $25,000 per year. This limit includes any contributions made by your employer via superannuation guarantee or salary sacrifice as well as any personal contribution which you chose to claim as a tax deduction.
- If you intend on using salary sacrifice to utilise your limit, then get in early as your employer may delay the payments. Check with your employer about making the final contribution in June rather than July (as they are only legally obliged to pay up to 28 days after the end of each fiscal quarter).
- If you make a personal contribution, then don’t forget to claim your deduction. If you make a personal contribution and chose to claim a tax deduction, you will need to lodge a Notice of intent to claim or vary a deduction for personal super contributions form. Ensure you claim a deduction before commuting to a pension or rolling to a new fund.
Concessional contributions are treated as income to your fund so will be subject to 15% tax. If you earn more than $250,0000, you pay Division 293 tax, an additional 15% tax on your contributions for income over $250,000.
Catch-up concessional contribution
From July 1 2019, if you have below $500,000 in your superannuation, you can rollover the unused concessional contribution from the prior year. You can rollover up to five years from July 1 2019; a total of $125,000 after five years.
- You must have less than $500,000 on July 1 of the financial year to rollover unused contributions from the prior year. Check your ATO portal on your myGov account for your unused concessional contributions and July 1 superannuation balance under the concessional contribution option in your superannuation section.
If you want to supercharge your superannuation savings, non-concessional contributions provide a much higher limit of $100,000 per financial year. You may also choose to ‘bring-forward’ three years (current and subsequent two financial years) of non-concessional contributions making up to $300,000 in the current year. You won’t be able to claim a deduction for your non-concessional contributions.
- Your total superannuation balance on July 1 of the financial year must have been less than $1.6 million.
- If you intend on triggering the ‘bring-forward’, you can only do so if you were under 65 on July 1 of the financial year.
- Be sure to check the current and prior two financial years’ contributions to ensure you haven’t inadvertently done in the past. This may result in excess contributions tax or a surcharge charge from the ATO.
If your spouse earns less than $40,000 per year, you may be able to make a personal contribution of up to $3,000 to your spouse’s superannuation account and then claim a tax offset of 18% up to $540 on your individual tax return.
- Your spouse’s income will be assessed based on their Adjusted Taxable Income. The spouse contribution counts as a non-concessional contribution to the recipient’s limit, and of course, their non-concessional contribution rules apply.
If you earn below $53,564, you may be eligible for the government co-contribution of up to $500 if you make a personal contribution of $1,000.
- Check that you meet the 10% eligible income test. To meet the test, more than 10% of your income must come from employment, self-employment, or a combination.
Reserve contribution (SMSFs only)
The reserve contribution strategy is ‘reserved’ for SMSF’s only and is arguably the most technical of the contributions. If you have an SMSF and you have had a significant income year and don’t expect one next year, the reserve contribution strategy may work.
If your SMSF allows reserving, your fund may be able to allocate a contribution to the ‘reserve account’ until 28 days after the end of the contributing month.
As an individual, you may be able to make up to $50,000 of contributions to your fund and claim a personal tax deduction for the full contribution without breaching the concessional contribution limit. In this case, you may be able to make a $50,000 contribution in June. The fund would immediately allocate $25,000 to your member account and $25,000 to the reserve account and then on July 1 allocate the remaining $25,000 to your member account.
- Check your SMSF trust deed to ensure your fund allows for a reserve contribution. If not, then you will need to update your trust deed before contributing.
- See the ATO’s most recent Taxation Determination TD2013/22 for more information.
The final consideration before making any contributions
Check your eligibility to contribute to super. Were you under 65 at the beginning of this financial year or you are between 65 and 75 and meet the work test (working 40 hours in a 30 day period during the financial year)?
Be sure to start planning early to avoid disappointment as far too often a transfer, BPay or cheque payment fails to clear before June 30.
As always, get good advice. Speak with a qualified financial adviser or accountant as superannuation contributions are fraught with trips and traps.
Originally published May 2020 by the Eureka Report.
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About Patrick Duke
Patrick is an experienced financial advisor working with high net wealth and complex clients at Integral Private Wealth’s Brisbane Office. Prior to Integral, Patrick worked with The Westpac Group for over 14 years. During this time, Patrick operated a large partnership practice within Westpac Private Bank and St George Private Bank.
Patricks’ emphasis is on providing highly tailored and holistic advice, breaking down the complexity and devising clear plans and outcomes for his clients.
Patrick holds a Master of Financial Planning Degree with Griffith University, receiving multiple awards for academic excellence including top in class for Tax Law. Patrick is a Member of the Financial Planning Association (FPA).