At this time of year, you may be considering topping up your superannuation contributions and perhaps claiming a tax deduction. There have been a number of changes to the superannuation concessions in the past few years and we present this summary to help clarify the new rules:
Concessional (tax deductible) contributions cap: $25,000
Whether you are self-employed or a salaried director of your own business intending to make additional “salary sacrifice” super contributions, you will need to decide well before 30 June 2019.
If you are retired and between age 65 and 75, you may also be eligible to claim a personal tax deduction for super contributions against your personal investment or other income, provided you can pass a “work test” (see below).
Personal top up contributions
If you are an employee or salaried director, compulsory Superannuation Guarantee contributions of 9.5% paid on your behalf during the 2018/2019 financial year count towards your concessional cap of $25,000.
New rules mean that any remaining concessional cap not used by your employer can be claimed by you as a personal tax deduction. The Government made this change to improve the flexibility of the super system so that more employed Australians can use their full concessional contributions cap.
Whether paid personally or by an employer, in order to be tax deductible, contributions must be in the hands of the superannuation fund no later than 30 June 2019. Since 30 June 2019 is a Sunday, it will be important that contributions are paid at least a few days before.
The ATO have ruled that internet transfers that do not reach a superannuation fund’s bank account by 30 June, are not tax deductible. With 30 June 2019 on a Sunday, it is possible that a direct transfer from your bank account, even on Friday 28 June may not reach the fund’s bank account until the next business day, Monday 1st July 2019 and won’t be tax deductible, so act early!
Catch up Concessional Contributions
You may be able to carry-forward any unused amount of your $25,000 concessional contribution cap this financial year, and claim it in a later financial year.
To be eligible to carry forward any of your unused concessional cap:
You must have had a total superannuation balance (all of your superannuation entitlements across all superannuation funds) of less than $500,000 at 30 June 2018.
You may claim a tax deduction in later years for any carried forward concessional cap amounts from a financial year, over a rolling five year period. Amounts carried forward that have not been used after five years will expire.
This change may make it easier for small business owners with varying cash flow, or people with varying capacity to save to contribute to superannuation and benefit from the tax concessions, as do those with regular income.
Non-Concessional (undeducted) contributions cap: $100,000
Non-concessional contributions to superannuation are not taxable when received by a superannuation fund and are also not tax deductible, but do allow you to invest your personal savings in a superannuation fund and enjoy low rates of tax on the investment earnings.
The non-concessional cap for 2018/2019 is $100,000 per person however for those under age 65, a “bring forward” rule may apply which will allow you to contribute up to $300,000 (3 x $100,000) now, but nothing for the next 2 financial years. You must have less than $1.4 million in your total superannuation balances across all superannuation funds at 1 July 2018 in order to be eligible to use the full bring forward amount of $300,000.
New rules prohibit non-concessional contributions completely where your total superannuation balances in all superannuation funds equalled or exceeded $1.6 million on 1 July 2018.
Contributions After Age 65 – The Work Test
To be eligible to make any voluntary contributions after reaching age 65, you must pass a work force participation test. This “work test” requires you to have worked in paid employment or self-employment of at least 40 hours within 30 consecutive days at any time within the financial year before a voluntary concessional or non-concessional superannuation contribution can be made.
If you are aged 75 or more, you cannot contribute to a superannuation fund. If employed, your employer is still required to pay compulsory contributions of 9.5% of your wage, but you cannot make additional salary sacrifice or personal contributions.
In the 2018/2019 Federal Budget, the Government announced a favourable extension to the work test rules. From 1 July 2019, Australians aged 65 to 74 with a total superannuation balance below $300,000 will still be able to make voluntary contributions for 12 months from the end of the financial year in which they last met the work test.
Government Co-Contribution
If you are a low or middle-income earner and make personal non-concessional contributions to your super fund, the Government will also make a contribution (called a co-contribution) to your fund, up to a maximum amount of $500. To receive the maximum Government co-contribution, you must:
Be less than 71 years old at the end of the financial year
Have assessable income* in 2018/2019 of less than $37,697 and 10% or more of that income must come from employment or carrying on a business
Have made at least $1,000 of personal (undeducted) contributions to your super account during the financial year, but no more than your non-concessional contribution cap of $100,000.
You had less than $1.6 million in total superannuation entitlements at 1 July 2018
* assessable income + fringe benefits + salary sacrifice super contributions (if any)
A partial co-contribution may be available where your income is between $37,697 and $52,697.
Contribution Splitting
When you split your contributions, you transfer or roll over a portion of the contributions you recently made to your super account, to your spouse’s super account.
This can be a useful technique in evening up the superannuation balances between spouses and maximising the available superannuation concessions in the future e.g. the $1.6 million personal cap on superannuation when transferring to the pension phase.
You can split concessional (taxable) contributions but not non-concessional (undeducted) contributions
You can split up to 85% of your concessional contributions, including compulsory 9.5% contributions made by your employer. Only 85% can be split as your superannuation fund must first deduct the 15% contributions tax.
You cannot split contributions if you are over age 65, or under age 65 and retired.
You can only elect to split contributions with your spouse after the end of the financial year
You need to complete an ATO Contribution Splitting Application Form and send it to your superannuation fund, after the end of the financial year.
Spouse Contributions Tax Offset – Now available where spouse’s income is up to $37,000
You can claim a personal tax offset against your tax payable of up to $540 for non-concessional contributions made on behalf of your dependant spouse. The tax offset is calculated at the rate of 18% of the contribution made, so a contribution of $3,000 x 18% attracts the maximum tax offset of $540 against your personal tax payable.
The Government has extended the spouse tax offset to assist more couples who support each other in saving for retirement. Previously, the full tax offset was only available where your spouse’s income was less than $13,200, however the threshold has been lifted for 2018/2019 to $37,000.
Eligibility:
You and your spouse are resident taxpayers, living together
You make non-concessional contributions to a superannuation fund in the name of your spouse
Your spouse has not already made maximum non-concessional contributions for the year and has less than $1.6 million in total superannuation entitlements at 1 July 2018
Your spouse’s income* is $37,000 or less
You claim the spouse contribution in your personal income tax return
*assessable income + fringe benefits + salary sacrifice super contributions (if any)
A partial offset is available where your spouse’s adjusted income is over $37,000 but less than $40,000.
Low Income Super Tax Offset
The low-income super tax offset (LISTO) is a Government super payment of up to $500 to help low-income earners save for retirement. For 2018/2019, if your income is less than $37,000, the Government will refund the 15% tax paid on any concessional superannuation contributions made on your behalf, up to a maximum amount of $500. This means that most low-income earners will pay no tax on their super contributions.
You do not need to apply for this tax offset. If you are eligible it will be applied automatically when you lodge your personal income tax return for 2019.
Pay Your SMSF Pension!
If you are paying yourself a retirement pension from your self-managed superannuation fund (SMSF), you must ensure that you will have paid at least the minimum required pension amount in cash, no later than 30 June 2019.
It is a condition of receiving tax free investment earnings on your pension fund that at least the minimum pension is paid. The ATO have ruled that fund’s that fail or forget to pay the minimum pension will revert to paying 15% tax on investment earnings for the entire financial year.
If you are unsure of your minimum required pension payment for 2018/2019, please contact us!
written: Chris Campbell
Disclaimer
The matters contained in this newsletter are factual information about taxation and statutory annual limits that apply to the current financial year, and do not take into account your personal circumstances. We accept no responsibility for persons acting on the matters contained herein without first obtaining specific advice from us that takes into account your personal circumstances.
We are not licensed financial advisers so we make no recommendation as to whether you should actually make, increase or decrease superannuation contributions. Superannuation funds are deemed to be “financial products” by the Corporations Law. Taxation is not the only consideration when considering investing in a financial product. You should consider seeking advice from the holder of an Australian Financial Services Licence.
Please contact us if you require further information or clarification of the information presented or seek independent financial advice from a licensed financial adviser.
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