1. Maximising non-concessional contributions (NCCs)
Since 1 July 2017, an individual’s non-concessional contributions are not only limited by the general or bring-forward NCC cap, but also by their total super balance (TSB) at 30 June of the previous financial year, as shown in the table below
Total super balance as at previous 30 June
|Standard NCC cap – individual over 65 on
|Bring- forward NCC cap for eligible individuals||Bring- forward period for eligible individuals|
|< $1.4 million||$100,000||$300,000||3 years|
|$1.4 million – < $1.5 million||$100,000||$200,000||2 years|
|$1.5 million – < $1.6 million||$100,000||$100,000||Standard cap only|
|≥ $1.6 million||$100,000||$0||n/a|
2. Turning 65 during the current financial year (2018/19)
If a client was 64 on 1 July 2018 and has turned or is turning 65 during this financial year, this will be the last chance for this individual to trigger the bring-forward NCC cap, provided:
• the individual did not trigger the bring-forward NCC cap in the past two financial years;
• the work test is satisfied if the individual has already turned 65 at the time of making the contribution;
• on previous 30 June (ie 30 June 2018), the individual’s TSB was below $1.4 million to trigger the three-year bring-forward NCC cap, or below $1.5 million to trigger the two-year bring- forward NCC cap.
3. Strategies to manage total super balance (TSB)
A client’s TSB at the previous 30 June impacts a number of superannuation measures including the client’s NCC limit (see Table 1 above).
In addition, a member’s TSB can impact:
• carry forward concessional contributions which become available from 1 July 2019 where a member’s TSB is less than $500,000 at the previous 30 June;
• government co-contributions where the member’s TSB is required1 to be under $1.6 million to qualify;
• spouse contribution tax-offset where the receiving spouse’s TSB needs to be less than $1.6 million;
• SMSFs – where an SMSF member with a retirement income stream has a TSB of $1.6 million or more at the previous 30 June, the SMSF is prohibited from using the segregated assets method to claim exempt current pension income;
• work test exemption from 1 July 2019 where the member’s TSB must be under $300,000.
The following strategies to reduce TSB before 30 June could potentially increase the amount of NCCs that can be made in the next financial year, as well as reduce the potential impact on other super measures stated above:
• A spouse with a higher super balance may split their 2017-18 concessional contributions to their spouse’s super account.
• Clients considering a ‘withdrawal and re-contribution strategy’ with a TSB over the relevant threshold may be able to make a withdrawal to reduce their TSB before 30 June 2019. The reduced TSB could enable the withdrawal amount to be contributed back to their super as a NCC in the new financial year.
• Where a client’s TSB is expected to be slightly over the relevant threshold on 30 June 2019, it may be possible to make additional withdrawals from their TTR or retirement income streams to bring their TSB below the threshold, in order to maximise NCCs in the next financial year.
4. Maximise concessional contributions (CCs) by making personal deductible contributions
With the removal of the 10% maximum earnings test from 1 July 2017, anyone* who is eligible to make member contributions to super can potentially claim a tax deduction for those contributions regardless of their employment arrangement.
Personal deductible contributions count towards an individual’s CC cap. The CC cap is $25,000 for the current financial year irrespective of an individual’s age.
The following strategies may assist in maximising CCs by making personal deductible contributions:
• Reviewing the amount of employer contributions (e.g. Super Guarantee and salary sacrifice contributions) and making personal deductible contributions up to the $25,000 concessional cap before the financial year ends.
• If a client receives a lump sum leave payment that represents the entitlements that they have already earned, they generally cannot salary sacrifice the leave payment to super. However, they can instead make a personal deductible contribution up to their CC cap to reduce their taxable income.
• Where an employer does not offer a salary sacrifice arrangement, the employee can now make a personal deductible contribution before the end of the financial year to achieve the same tax effective outcome.
• It is important to note that in order to claim a tax deduction, the member must lodge a valid Notice of intent to claim a deduction form with their super fund within the required timeframe. Any withdrawals, rollovers or commencing an income stream could partially or fully invalidate a subsequently lodged notice of intent.
• Any amount specified in the notice of intent form that is disallowed as a deduction by the ATO will count toward the member’s NCC cap, and would result in breaching the NCC cap. This can happen if the individual does not have sufficient taxable income to claim the deduction.
• The general rule of thumb is that an individual should not be left with taxable income that is less than the effective tax- free thresholds by making a personal deductible contribution or by way of salary sacrificing to super. Taxable income below the effective tax-free threshold is taxed at 0% at the personal level, compared with 15% if made to super via concessional contributions. The effective tax-free threshold for the 2018-19 financial year, after applying the Low Income Tax Offset (LITO), the Low and Middle Income Tax Offset (LMITO) and the Seniors and Pensioners Tax Offset (SAPTO), is stated in the table below:
|Couple status||Tax offsets||Effective tax-free threshold for 2018-19|
|Single/member of couple||LITO and LMITO||$21,5953|
|Singe||LITO, LMITO and SAPTO||$32,9143|
|Member of couple||LITO, LMITO and SAPTO||$29,608**|
* If a client is under 18 at the end of an income year, they can only claim a deduction for personal super contributions if they have employment or self-employed income.
** The Government announced its intention to increase LMITO from 1 July 2018 to June 2022. If legislated, the effective thresholds stated in this table will increase.
5. Don’t miss out on the Government co-contribution
If your client’s income (ie assessable income, reportable fringe benefits and reportable employer super contributions) is less than $52,697 and at least 10% of this income is derived from employment activities (including self-employment), your client may be entitled to the government super co-contribution.
To be eligible, the member needs to be under 71 at the end of the contributing financial year and if over 65, they must meet the work test to be able to contribute.
The maximum Government co-contribution is 50 cents for every $1 of eligible personal super contributions made in a financial year and is subject to an income test. The maximum co- contribution of $500 reduces by 3.333 cents for every $1 that the individual’s total income exceeds $37,697 and phases out once it reaches $52,697.
The income used to calculate the amount of the co-contribution is the sum of the assessable income, reportable fringe benefits and reportable employer super contributions, less any amounts that the individual is entitled to claim as a tax deduction as a result of carrying on a business.
6. Making spouse contributions to receive the tax offset
The thresholds for spouse contribution tax offset purposes increased from 1 July 2017 and are considerably higher than previous financial years. Since the increase, many of your clients may now become entitled to this tax offset by making the spouse contributions.
The maximum tax offset of $540 is available to the contributing spouse for making a $3,000 spouse contribution, where the receiving spouse’s assessable income, total reportable fringe benefits and reportable employer super contributions is $37,000 or less. The tax offset gradually reduces for income above $37,000 and completely phases out when the income reaches $40,000.
This non-refundable tax offset can help the contributing spouse reduce their tax liability.
7. Taking advantage of super contributions splitting
Subject to the super fund’s governing rules, super contributions splitting makes it possible for a member to split their CCs to their spouse’s super where the receiving spouse is either:
• under preservation age, or
• has reached their preservation age but under age 65, and not retired.
Benefits of super contributions splitting can include:
• The strategy can help to equalise super accounts between spouses. This may help to keep each member of the spouse’s super benefits under the transfer balance cap (ie currently $1.6 million) in the long run. Accordingly,
• each member of the couple could maximise their NCCs, and
• a couple could maximise the combined amount that can be transferred to the tax-free retirement pension phase.
• The splitting amount can help to pay for life and TPD insurance premiums for a low income or non-working spouse through their super.
• This strategy can improve a client’s Centrelink position by splitting contributions to the younger spouse.
• Accessing superannuation benefits earlier by splitting contributions to the older spouse.
8. Ensuring contributions are made before 30 June
When a contribution is made can be an important factor for many super rules, such as:
• a super contribution is deductible in the financial year it is made;
• whether a fund is able to accept a contribution (e.g. member’s age and any related work-test requirement) is assessed at the time the contribution is made;
• a super contribution counts towards a member’s relevant contributions cap in the financial year that it is allocated to the member’s account. The super law requires a super fund to allocate a contribution to the member’s account within 28 days after the end of the month it is received. Practically this means:
• In an APRA regulated retail or industry fund, the contribution is generally allocated to the member’s account immediately once the contribution is made.
• In an SMSF, subject to the fund’s governing rules, the fund may be able to allocate a contribution made in June to its member’s account in July. This means it is possible to claim a tax deduction for personal contributions made throughout the entire financial year, while the trustee of the SMSF may allocate the contributions made in June to the following financial year by 28th July. The amount allocated to the member’s account in the new financial year will count towards the member’s concessional contributions cap in that financial year.
The ATO in its Tax Ruling TR 2010/1 outlines the way in which funds are typically transferred and when the contribution is made:
|If the funds are transferred to the superannuation fund by…||A contribution is made when…|
|Making a cash payment||The cash is received by the superannuation provider|
|An electronic transfer of funds, including using the clearing house system||The funds are credited to the superannuation provider’s account|
|Money order or bank cheque||The money order or bank cheque is received by the superannuation provider, unless the order or cheque is dishonoured|
|Personal cheque (other than one that is post-dated) that is presented and honoured with cash or its electronic equivalent||The personal cheque is received by the superannuation provider, so long as the cheque is promptly presented and is honoured|
|Post-dated cheque that is presented and honoured with cash or its electronic equivalent||The cheque is able to be presented for the payment (that is, the date on the cheque), so long as the cheque is promptly presented and is honoured.|
|In specie transfer of listed shares||The superannuation provider obtains a properly executed off-market share transfer in registrable form.|
|In specie transfer of real property||When the superannuation provider acquires the beneficial ownership of real property, which is when the fund obtains possession of a properly executed transfer that is in registrable form together with any title deeds and other documents necessary to procure registration of the superannuation provider as the legal owner of the land.|
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