This financial year has been a year like no other, so your super and tax affairs may need extra attention. There’s still time to take advantage of the excellent tax opportunities on offer within the super system.
To help ensure you have maximised the available tax benefits, here’s Calibre’s top 10 super strategies for the end of the financial year on 30th June 2021.
If you want to have a super contribution counted in the 2020/21 financial year, ensure your super fund receives it by 30 June 2021. This is particularly important if you plan to claim a tax deduction for contributions.
The key date for making contributions is not when you make the payment, but when it’s received by your super fund. Even though many banks and financial institutions now offer instant payments, electronic fund transfers and BPAY can take a number of days to appear in your super account.
Need to know – For employers
If you are an employer, you only receive a tax deduction for making employee Superannuation Guarantee (SG) contributions in the same financial year the SG contributions are received by the super fund.
So, if you want to claim a deduction for them in the 2020/21 financial year, ensure you make all the necessary SG payments for your employees well before 30 June.
Contributions are considered paid when the super fund receives them. Missed payments may attract the super guarantee charge (SGC), which is not tax deductible.
Last year, thousands of Aussies applied for early release of some of their super savings. If you were one of them and your financial position now looks better, why not think about rebuilding your super balance?
Since 1 July 2017, eligible Australians aged under 75 have been able to claim a tax deduction if they make a personal contribution into their super account up to the concessional contributions cap. The contribution is open to employees, the self-employed and investors.
It makes sense to consider a voluntary personal super contribution as you can claim a tax deduction for it. You also only pay a maximum tax rate of 15% on investment earnings in your super account, compared to earnings on your personal investments outside the super system which are taxed at your marginal tax rate (up to 45%).
There are annual caps on how much you can put into your super account, so it’s essential to monitor the total amount of both your concessional (before-tax) and non-concessional (after-tax) contributions across all your super accounts before making a pre-30 June contribution.
Check whether any payments intended for the 2019/20 year slipped into this financial year to ensure you don’t breach your annual contribution caps.
The key contribution caps for 2020/21 are $25,000 for concessional (before-tax) contributions and $100,000 for non-concessional (after-tax) contributions.
Don’t forget your concessional contributions include all your employer’s SG contributions, salary sacrifice amounts and any personal contributions for which you plan to claim a tax deduction.
The caps for both concessional and non-concessional contributions are increasing by 10% from 1 July 2021 (for the 2021/22 financial year onwards). The annual concession contributions cap will increase from $25,000 to $27,500, while the annual non-concessional contributions cap will increase from $100,000 to $110,000.
Confirm with your employer when they will be making their electronic contributions (such as salary sacrifice and SG amounts) to your super fund, so you know whether or not they will hit your super account by 30 June. As your employer is not required to make SG contributions for the April to June quarter until 28 July 2021, don’t automatically assume they will make the contribution during this financial year.
Good to know
If your employer isn’t planning to make their employee super contributions until after 30 June 2021, you may be able to take advantage of your unused concessional contributions cap and make a larger concessional contribution yourself (tax deductible).
Non-concessional (after-tax) contributions are made from money you have already paid tax on and can be a great way to boost your super account if you have spare cash available and you’ve already reached your concessional contributions cap. One advantage is you only pay 15% tax on your investment earnings, which is significantly less than you pay on investment earnings outside super.
The general non-concessional contribution cap for 2020/21 is $100,000 (rising to $110,000 from 1 July 2021). Provided your Total Superannuation Balance (TSB) is below $1.6 million on 1 July 2020 and you are under age 67, you can make a contribution. Once you are aged 67 and over, you must meet the work test or the work test exemption to make a non-concessional contribution.
Good to know
From 1 July 2021, the current TSB cap of $1.6 million will increase to $1.7 million. Once your total super balance exceeds this cap, you are not able to make non-concessional contributions into your super account.
Super fund members under age 65 may also be able to use up to three years of their non-concessional contribution cap this financial year (3 x $100,000 = $300,000) if they meet the eligibility criteria for using a bring-forward arrangement. (Bring forward arrangements generally cannot be started once you reach age 65 but this may change under recent proposals not yet legislated).
If you plan to make a non-concessional contribution into your super account before EOFY, it’s essential to check what your TSB was on 30 June 2020.
If your TSB was $1.6 million or more on 30 June 2020, you are ineligible to make any non-concessional contributions during 2020/21 without triggering an excess contribution and paying additional tax on your contribution.
Good to know
Your TSB is used to track and limit the amount of savings you can have in the super system. A TSB consists of all your accumulation phase and retirement phase super interests, plus any rolled over super benefits. Couples can tax effectively accumulate $3.2 million in super (moving to $3.4 million from July 1st 2021) from which they can ultimately commence tax free pensions.
If you are over age 67, it’s essential to check you can meet the conditions of the work test before making additional super contributions prior to 30 June 2021. Under current rules the work test applies if you are aged 67 and above and decide to make a voluntary personal contribution. If you are, you must have been ‘gainfully employed’ for at least 40 hours in 30 consecutive days during 2020/21 to make a personal super contribution.
If you can’t meet the work test, you may be able to use the one-off work test exemption. This exemption allows people with a TSB below $300,000 to make a contribution in the financial year following the last year they were working without needing to meet the work test.
While most people think about making extra personal super contributions from their employment or self-employed income, don’t forget it’s also possible to make super contributions from investment income (including dividends or rental income) and capital gains.
If the balances of you and your partner’s super accounts are very different, consider submitting a request to split some of your super contribution with your spouse to even them up. Requests to split need to be made by 30 June of the financial year following the year the contributions were made, so you can split some of your 2019/20 super contributions if you lodge a request with your super fund by 30 June 2021.
If your spouse has an adjusted taxable income below $37,000, you can also consider making a contribution into their super account to boost their retirement savings – and possibly earn yourself a tax deduction.
Eligible contributions into your spouse’s super account of up to $3,000 may provide you with a tax offset on your tax bill of up to $540. If your spouse’s total income is up to $40,000, you can still qualify for the offset, but the amount will be less.
Need to know
Your spouse must be under age 67 to receive a contribution from you if they are not working. If they are aged 67 to 74, your spouse must meet the work test or work test exemption rules.
Up to 30 June 2020, spouse contributions could only be made if the receiving spouse was aged under 70. Legislative changes last year lifted the upper age limit for a receiving spouse to 74 from 1 July 2020.
Now is the time to start talking to your employer about getting a salary sacrifice arrangement in place for 2021/22. Salary sacrifice is an arrangement where part of your before-tax salary is paid into your super account rather than being paid to you as take-home pay. These arrangements can be a tax-effective way to boost your super account, particularly as the concessional contributions cap will be $27,500 in 2021/22.
To be valid, a salary sacrifice arrangement needs to be set up before the start of the new financial year, so ensure you have the arrangement fully documented before 30 June.
If you are aged 65 or older and have sold your main residence in the last financial year, you may be able to make a downsizer contribution of up to $300,000 ($600,00 for a couple) into your super account before 30 June.
Downsizer contributions allow you and your partner to each make contributions into your super accounts if you owned your home for a minimum of ten years. This one-off contribution isn’t counted towards your annual concessional or your non-concessional contributions caps and is available regardless of your TSB.
If you are in the retirement phase and are receiving a super pension, check you have received at least the required minimum pension or transition-to-retirement income stream payment amount during 2020/21.
As a response to COVID-19, the government announced a temporary 50% reduction to the minimum drawdown rates on super pensions for FY21. It’s important to check with your super fund or SMSF trustee to ensure you have taken at least your new minimum payment amount, as underpayment can lead to significant compliance problems.
To find out more about how any of these measures may be of assistance in your individual circumstances, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.
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