With only a couple more sleeps to go until the end of the financial year, here are five last minute super actions to take. But you will need to act straight away because contributions must be receipted and banked by your super fund or your SMSF before the close of business on Friday.
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.
2. Can you make additional post-tax contributions to super?
Non-concessional contributions are personal super contributions made from your own after-tax monies. You don’t claim a tax deduction for these contributions and they are capped at $100,000 each year. You must be under 65, or if aged between 65 and 74, meet the work test to qualify. And your total super balance (as at 1 July 2017) must also be less than $1,600,000.
If you are under age 65 (technically aged 64 or less at 1 July 2017), then you can access the “bring-forward rule” 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 $1.4 million full amount; $1.4 million to $1.5 million $200,000; $1.5 million to $1.6 million $100,000).
3. 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 (non-concessional) 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 three 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!
4. 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 dollar for dollar basis for each dollar 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.
5. 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.
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