The end of the financial year is just around the corner and now is the time to look at your Super to make sure you are maximising your retirement savings. Don’t wait until 30th June either, as many of these tips require steps to be completed by third parties and delays could see you either not being eligible, or in the case of contributions, the contributions may be counted towards the next financial year.
- Maximise super contributions
A great way to build your retirement savings is to look at making the maximum contributions each year. The annual contribution caps are reset each financial year, meaning the unused portion of the caps do not roll over to another year – it’s a case of use or lose it!
For most people, being an employee means the 9.5% super guarantee contributions your employer makes will fall short of the maximum annual contribution cap. For small business owners, the added benefit is the contributions can reduce your business’ overall tax bill by providing a tax deduction for the additional contributions.
For the 2014/2015 financial year, the concessional (tax deductible) contribution cap is $30,000 if you are under age 49 at the start of the financial year, and $35,000 if you are aged 49 and over. Non-concessional (after-tax) contributions are capped at $180,000 with some special rules around age and aggregation of totals. There are also other aged based rules for both types of contributions as well that you need to consider.
Remember to carefully check what contributions have already been made for the 2014/2015 financial year as exceeding your annual contribution caps may lead to unintended tax consequences.
- Personal tax deductions
If you are self-employed you may be entitled to a tax deduction for concessional contributions if less than 10% of your taxable income, salary-sacrificed super and “reportable fringe benefits” arise from work as an employee.
If you have been “contracting” to the same employer all year you will want to get some advice to make sure you will satisfy this test before making the contributions. The annual contributions caps above apply to self-employed people as well.
- Salary Sacrifice arrangements
Salary sacrifice arrangements are required to be put in place before the income is earned. So now is the time to review your 2015/2016 financial year arrangements, especially if you are going to be age 49 or older as at 1 July 2015, as the higher concessional contribution cap rate will apply to you.
- Insurance inside super
As mentioned, exceeding your contribution caps can lead to unintended tax consequences. One common way people exceed their contribution caps is by them, or their employer, paying for the life and disability insurance premiums not realising the policies are in fact held inside a super fund account. Each premium payment will be treated as a contribution and counts toward your annual contribution caps. If in doubt get it checked out!
- Co-contributions
Why not have the Government tip in some money into your super as well! To be eligible for the $500 Government co-contribution for the 2014/2015 financial year, you need to earn less than $49,488 and make a personal (after-tax) contribution of at least $1,000 to your super fund. And if you are not eligible, maybe your spouse or family member who is working part time (even in the family business) could be.
- Low income super contribution
This concession is designed to pay up to $500 back to the super fund to offset the tax paid on concession contributions made during the 2014/2015 financial year. To be eligible you need to have income of less $37,000 with concessional contributions of at least $3,300. The LISC reduces depending the amount of concessional contributions made to your super account. Lodging your personal tax return triggers this calculation automatically.
- Spouse contributions
A little known tax offset is the spouse contribution tax offset. It works when you make a personal (after-tax) contribution on behalf of your spouse to their super fund. For you to receive the maximum tax offset of $540, your spouse has to earn less than $13,800 and the personal contribution needs to be at least $3,000. Other conditions include you can’t claim a tax deduction for the contribution and doesn’t include any contribution you have split with your spouse.
- Contribution splitting
Another way to build your spouse’s super balance is where you ask your super fund to split up to 85% of your concessional contributions and transfer them into your spouse’s super account. The strategy behind contribution splitting may be for estate planning purposes or to hedge against future legislation that reduces tax concessions on higher super balances. There are some age and timing rules which you will need to some assistance with, hence why we tend to see this strategy occur more in self-managed super funds (SMSFs).
- Minimum pension payments
For those receiving super pensions, especially from your SMSF, make sure you have received at least the minimum annual pension by 30th June. Failing to do so puts your SMSF at risk of losing its tax-free status on the assets supporting your pension. If you are not sure what your minimum annual pension is speak to your super fund administrator or accountant now.
- Plan ahead for next year
Finally, now is the time to plan ahead. There are lots of opportunities for people to build and protect their retirement savings. Anyone reaching age 49, 60 or 65 during the 2015/2016 financial should be getting in front of their accountant or financial planner today as there are significant tax strategies that could be implemented.
For others, seeking advice early can set you on the path to financial security and it doesn’t hurt to have your financial plans reviewed on at least an annual basis. As they say “failing to plan, is planning to fail”.
If you would like to know more about super please contact us today. You can keep up to-date on all things super by following us on Facebook.
The information contained in this article is general in nature and does not take into account your personal situation or objectives. You should not act on this information in any way before seeking professional advice.
