Are You 30 June Ready?

As we near the end of another financial year, our attention turns to strategies that can be put into place before 30 June 2018 to optimise superannuation and tax positions. Whilst the significant overhaul to superannuation that occurred last financial year now sees fewer opportunities to take radical measures to maximise after-tax accumulation; there is still plenty you can do to grow and protect your wealth. It now just takes more time and therefore careful planning to devise longer-term plans.

Maximising Tax-Effective Contributions To Superannuation – Concessional Contributions

Concessional contributions are those for which either the employer or member receives a tax deduction, such as the compulsory 9.5% contributions most employed members would be familiar with. The benefit of these contributions is firstly, that they facilitate a moderate retirement savings plan and secondly, that they can improve the member’s own personal tax situation.

Current contributions caps limit concessional contributions to $25,000 per member per year. This cap applies to all members, regardless of age and existing superannuation balances.

What it means for you: even if you have already accumulated in excess of $1.6 million in superannuation, you can still make concessional contributions. If you are aged over 65 years, you will need to satisfy the ‘work test’ to be eligible to make a contribution.

Take Back Control – Claiming Personal Tax Deductions

A welcome change implemented from the 2016 budget was the removal of the ‘substantially self-employed’ test, which required that employees were unable to make personal superannuation contributions and claim a tax deduction if more than 10% of their income was derived from employment (i.e. salary). Historically, the only way to maximise concessional contributions for employed members was to enter into a salary sacrifice arrangement whereby their employer agreed to withhold part of their salary and contribute it to the member’s superannuation account. Members’ contributions were therefore left in the hands of their employers and often led to inadvertent breaches of contribution caps which penalised members without any recourse for employer’s tardiness.

Now, any member may make a concessional contribution to superannuation from their personal funds and claim a personal tax deduction without having to rely on their employer – giving greater control and flexibility to the member to decide how much and when to contribute. The net tax effect is the same to the employee when compared to salary sacrifice arrangements.

What it means for you: an excellent opportunity to boost your superannuation every year by contributing surplus income, bonuses and other excess after-tax capital, whilst also benefitting from a tax deduction.

Hazards to Avoid

Hazards to avoid:

  • These personal, deductible contributions count towards the same annual cap as compulsory employer contributions so care will need to be taken to ensure the combination of all concessional contributions (employer plus personal deductible) does not exceed $25,000.
  • A tax deduction can only be claimed to the extent of the member’s personal taxable income. That is, the deduction cannot reduce taxable income below zero. Consideration of the individual member’s taxable income, having regard to available tax offsets, will need to be assessed prior to making a contribution.
  • Concessional contributions incur a 15% tax in the super fund. Whilst you will receive a tax deduction in your personal tax return, depending on your income level the reduction in tax in your personal name may be more than offset by the tax paid by the super fund.

(Smaller) Windows Of Opportunity – Non-concessional Contributions

All is not lost when it comes to building superannuation as a tax-effective nest egg…but it does require a plan, stepped out over a number of years into the future if the objective is to maximise an after-tax retirement income stream.

Over the past 12 years, the ability to funnel personal wealth into superannuation has, bit by bit, become more limited with the introduction of the Transfer Balance Cap last year now restricting the contribution of after-tax monies (for which no tax deduction is claimed) to only those members with balances less than $1.6 million.

The non-concessional contribution limit is now $100,000 per member per annum where their superannuation balance as at 30 June 2017 was less than $1.6 million. The three-year bring-forward concession still applies, which means that up to $300,000 can be contributed this year (subject to the size of contributions made in the 2016 and 2017 years), but no further non-concessional contributions can be made in the next two financial years.

What it means for you: employer contributions only go so far, so non-concessional contributions are your greatest strategic opportunity to increase the amount of your capital accumulated in what is generally the most tax-effective vehicle. However, due to tight annual limits, a sufficient retirement pool can only be built if contributions are made over multiple years well ahead of age 65 years, where financial resources allow.

Hazards to Avoid
Hazards to avoid:

  • Non-concessional contributions are still subject to the ‘work test’ beyond age 65 years, meaning members must be gainfully employed for at least 40 hours in a period of 30 consecutive days.
  • For those members with balances near $1.6 million, this three-year bring-forward cap is reduced to ensure this year’s contribution does not send them too far above the Transfer Balance Cap:

NCC-Cap1 Does not take into account contributions made in 2016 and 2017 under the bring-forward provisions

Get your Super ready for EOFY

Cameron Harrison’s partners have been delivering specialist advice to business owners and families for over 50 years. Through our defined planning methodology, our clients gain access and receive a careful and properly integrated wealth framework.

For further information on how to consider and effectively plan for the end of financial year or any other inquiries, please contact us on +613 9655 5000.

Anne-Marie Tassoni, Partner (am.tassoni@cameronharrison.com.au)
Tristan Bowman, Manager (tristan.bowman@cameronharrison.com.au)