The end of the financial year is fast approaching. Now is the perfect time to review your superannuation and tax strategies to maximise your financial situation and avoid breaching super contribution caps, before 30 June 2019 deadlines.
To help you prepare, here are seven superannuation strategies to consider:
- Check your concessional contributions so you don’t go over the $25,000 cap
Concessional contributions include employer superannuation guarantee, salary sacrifice and personal tax deductible contributions. If you exceed the concessional contributions cap of $25,000 (2018/19 FY) there can be penalties and consequences. If you are getting close to the concessional cap, now may be a good time to review and consider your options while there is still time to make adjustments.
- Make a personal tax-deductible super contribution to save personal income tax and boost your super
Personal tax-deductible super contributions can save you tax as the contributions are tax deductible and offset against your assessable income. These contributions also boost your superannuation account for retirement. Tax savings from this strategy can be as high as 32% of the amount of the contribution. Personal tax-deductible super contributions count towards your concessional cap, so you may want to explore this if you believe you or your partner will be under your concessional cap of $25,000 for 2018/19.
However, there are scenarios where you may prefer not to use your unused concessional cap in the current financial year. If you have a total super balance of less than $500,000 you can potentially carry forward your unused concessional contributions cap that accrues from 1 July 2018 onwards for up to five financial years. This effectively allows you to access a higher concessional cap in a future year with the first opportunity for eligible clients being 1 July 2019. This could be helpful if you expect a large amount of assessable income in a future financial year, such as from a property sale or significant pay increase, and wish to have access to a larger tax deduction in that year.
- Make a non-concessional super contribution so you have a greater balance held in a low tax environment (0% to 15% earnings tax)
Making a non-concessional contribution is one of the key methods for building further wealth in superannuation where there is a low concessional tax rate on earnings of 15% in the accumulation phase and 0% in the pension phase. This low tax rate environment compares favourably to the top individual marginal tax rate of 47%. You can make up to $100,000 per annum in non-concessional superannuation contributions or, subject to eligibility requirements, up to $300,000 via a ‘bring-forward’ rule. Once your superannuation balance reaches $1.6 million you will be unable to make any further non-concessional contributions. However, your superannuation can still accumulate from earnings/growth and concessional contributions (if eligible).
Contribution caps were reduced substantially from 2017/18, so there is now greater importance on starting your superannuation contribution strategies earlier to maximise your superannuation balance and build a tax-effective retirement fund.
- If you are getting close to a $1.6 million super balance, consider making a small super withdrawal, if eligible, before 30 June 2019, which may increase the amount you can contribute to super
Your superannuation balance is measured at 30 June each year and once it reaches or exceeds $1.6 million, you are unable to make any further non-concessional super contributions in the next financial year. So, if your superannuation balance is getting close to $1.6 million, you can potentially make a small superannuation withdrawal to get you under that super balance cap before 30 June 2019. This may give you an opportunity to make an additional superannuation contribution in 2019/20. To use this strategy, you will need to satisfy the eligibility requirements to make superannuation withdrawals.
- Split your concessional super contributions to your spouse to help equalise super balances and potentially increase the total amount you can have in tax-free pension accounts
Splitting your superannuation contributions to your spouse’s super account has become a more popular strategy since the introduction of the $1.6 million transfer balance cap. This cap limits the amount of superannuation you can have in the pension phase where there is 0% tax on earnings, and applies on a per person basis. Any superannuation balance in excess of the $1.6 million cap must remain in the accumulation phase of superannuation, where earnings are taxed at 15%.
Spouse contribution splitting can allow you to equalise super balances between you and your partner over time. It can potentially allow you to hold a greater amount in the tax-free pension phase as a couple compared to building super in just one member’s super account. You can split up to 85% of your concessional super contributions in a financial year to your spouse, subject to your spouse not being over age 65 or having reached their preservation age and retired. The concessional contributions which are split still count towards the cap of the spouse who made the contributions.
An application to split the contributions must be made in the financial year following the financial year in which the contribution was made, so if you wish to split your 2017/18 contributions you will have to consider this before 30 June 2019.
- Make a super contribution for your spouse that may provide you with a spouse contribution tax offset and reduce your personal income tax
If your spouse earns less than $40,000 then you may be eligible for a tax offset for making a superannuation contribution into your spouse’s super account. The tax offset you receive will depend on the amount your spouse earns and the amount you contribute. The amount of the offset can be as much as $540 if your spouse earns less than $37,000 and you contribute $3,000 into their superannuation account before 30 June 2019. To be eligible, your spouse will need to be under age 70 at the time of the contribution. If your spouse is aged 65 to 69 they must also meet a work test.
- Make a non-concessional contribution to get access to the Government co-contribution
If you make a $1,000 non-concessional superannuation contribution, the Government may also make a co-contribution of up to $500 into your superannuation account. To be eligible, 10% or more of your total income for the year must be attributable to employment and/or self-employment. To be eligible for the full amount of the co-contribution, your income must not exceed $37,697 p.a. You may be eligible for a partial amount if your total income for the year is between $37,697 p.a. to $52,697 p.a.
If not relevant to yourself you may wish to consider the eligibility of your spouse or working children.
The information above is a basic summary of some common superannuation strategies you might consider. There may be further eligibility considerations and details involved, so it’s best to seek advice from a licensed financial advisor to create a strategy that suits your requirements.
If you would like to speak to a financial adviser about your personal circumstances, you can do so by calling 1800 128 268 or by scheduling an appointment or check our website for more information.
* Taxation, legal and other matters referred to in this article are of a general nature only and are based on an interpretation of laws existing at the time of first publication and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
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