With end of financial year around the corner, it’s time to review your superannuation and take advantage of planning opportunities. This year, 30 June falls on a Sunday – so ensure you have your strategies in place by Friday 28 June.
Additionally, if you have a Self-Managed Superannuation Fund (SMSF), you will need to make sure your trustee obligations and annual tasks are in order.
Here are our steps to ensure you are on top of the superannuation rules and opportunities:
1. Maximise concessional contributions
Making concessional contributions can be a tax-effective way to build your superannuation. The concessional cap for the 2019 financial year is $25,000. Concessional contributions include:
- Your employer’s superannuation contribution (the compulsory 9.5%);
- Any salary sacrificed contributions; and
- Any personal contributions you can claim as a tax deduction.
Ensure these are all taken into account when determining how much space you have left in your concessional cap.
Double check your salary sacrifice arrangement’s timing so you know when your fund will receive amounts yet to be paid. Note, contributions are deemed to be made in the year the fund receives and processes them. Finally, check that your fund did not receive any of last financial year’s contributions in this financial year.
2. Personal super contributions
Most people, both employees or self-employed, can make contributions to their super fund and claim a tax deduction in the current financial year. In order to do so, you need to:
- Allow enough time to ensure your superannuation fund’s bank account has deposited and cleared the contribution by Friday 28 June. We suggest checking the fund’s cut-off date if you have an industry or retail fund.
- Check with your fund what paperwork is required. To claim a tax deduction, you will need to complete and lodge a Notice of Intent to Claim the Deduction and have this notice acknowledged (in writing) before the date you lodge your tax return, or the lodgement deadline date – whichever is earlier. The normally accepted ATO form is here. If the paperwork is not completed, you cannot claim the deduction!
- If you are aged between 65 and 75, you must have passed the work test to be able to contribute to super. The work test is met by working a minimum of 40 hours paid employment in a 30 day consecutive period during the financial year.
- Make sure personal superannuation contributions don’t create a tax loss, as you will be unable to claim the deduction as a concessional contribution.
3. Non-concessional contributions
The general non-concessional (after-tax contributions) cap for the 2019 financial year is $100,000. Eligibility to utilise the cap can depend on your total superannuation balance (TSB). See below for details regarding TSB thresholds.
Members aged over 65 will need to meet the work test to make a NCC. The work test is met by working a minimum of 40 hours paid employment in a 30 day consecutive period during the financial year.
If you are under 65 years of age at any time in the 2019 financial year, you can bring forward three years of NCC, depending on your TSB. This enables up to $300,000 of NCC to be made in one year.
The bring forward rule is automatically triggered if you make a NCC of more than $100,000 in one year. The total NCCs for the current year and next two years must be within the contribution cap of $300,000 total.
- Example: Jack is 40 years old and makes a non-concessional contribution of $150,000 in the 2019 year. This means his total non-concessional contributions over the 2020 and 2021 year cannot exceed $150,000 (being $300,000 in total). If he contributed $120,000 in the 2020 year, he would only have $30,000 left of the cap to use in the 2021 year. In the 2022 year he would be back to having a $100,000 cap and potentially bring forward another two years again.
Complex transitional arrangements do apply if the bring forward rule was triggered pre 1 July 2017. Please contact us to discuss these where relevant.
4. Downsizer contributions
From 1 July 2018, there is a new type of personal contribution available. It enables eligible members to contribute up to $300,000 to superannuation from the sale of their family home. This is regardless of TSB or age.
Members must be 65 years or older at the time of contribution and have owned the home for ten years minimum. The contract for the sale of the home must be after 1 July 2018. Furthermore, the proceeds need to have been contributed to superannuation within 90 days of settlement.
This personal contribution will not impact concessional or NCC caps and is a once-only opportunity per member.
Note the home does not have to be your family home at the time of sale. Also, it does not have to have been the family home for the entire ten years – increasing the pool of properties that may be eligible for the contribution.
Do you meet the relevant work tests and earn less than $52,697? If so, it is also worth considering if you can take advantage of the Government super co-contribution.
The co-contribution is a contribution to your superannuation fund from the government matching contributions made by a member at up to 50% with an upper government contribution limit of $500.
6. Spouse contribution
If your spouse earns less than $40,000 and you make a superannuation contribution for them, you may be able to receive a tax offset of up to $540, depending on your spouse’s TSB.
7. Manage your transfer balance cap
Don’t forget, there is now a cap of $1.6m on the amount you can have in tax free pension phase. Therefore, end of financial year is the perfect opportunity to rebalance pension accounts between spouses. Ensure super balances are as even as possible and the $1.6m transfer balance cap (TBC) is maximised for each member.
Make sure you review your TBC and contact us to determine the optimum strategy for amounts in excess of the cap.
8. Condition of release
If you have met a condition of release during the year, consider whether commencing a pension could be beneficial. A condition of release includes reaching:
- 65 years of age
- 60 years and retiring from a position of gainful employment
- 57 years and retiring from gainful employment with the intention of working no more than 10 hours per week again
Note there are also some rules that allow access for financial, health or compassionate grounds.
9. Drawing superannuation pensions
If you are in pension/retirement phase, you need to ensure the minimum pension has been paid to you in cash for this financial year. These pension payments must be cleared from your SMSF bank account by Friday 28th June 2019.
Give yourself enough time for the payments to clear from your SMSF bank account. Failure to pay your minimum pension may result in your fund losing its tax-free income status on your pension balance.
If you have withdrawn more than your minimum pension this year, make sure you talk to your adviser and document how you wish the excess to be treated.
10. SMSF fund expenses
Review your bank account for the year and make sure your SMSF has paid any SMSF related expenses. Also, double check that your SMSF had not paid any personal expenses, and correct these if need be.
Total superannuation balance
Many contributions strategies regarding superannuation depend on a person’s total superannuation balance (TSB) as at 30th June of the previous year.
Your TSB is a total of all of your superannuation balances held in all your superannuation funds.
Some of the key thresholds are:
|Threshold||Who is impacted
|$300,000||From the 2020 financial year, members aged 65 on 1 July 2019 can continue to make personal concessional contributions for one year without meeting the work test if their TSB is below $300,000.
|$500,000||Members can make catch up contributions if they haven’t fully utilised their personal concessional caps in prior years while their TSB is less than $500,000. The first year catch up contributions can be made is in the 2020 financial year.
|$1,000,000||If any member of an SMSF has a balance in excess of this, the fund is required to prepare a Transfer Balance Account Report (TBAR) quarterly where an event that affects the TBC occurs for any member of the SMSF during that quarter.
|$1,400,000||Having a balance below this threshold allows a member (under 65 as at 1 July each year) to apply the three year bring forward rule for NCC.
|$1,500,000||Having a balance below this threshold allows a member (under 65 as at 1 July each year) to apply the two year bring forward rule for NCC.
|$1,600,000||Having a balance below this threshold allows a member to make up to $100,000 NCCs.
At or above a balance of $1.6M, members are no longer eligible to make NCC, claim spouse contributions or be eligible for government co-contributions.
Please contact us to discuss any 2020 planning opportunities that may be relevant to manage your TSB.
Ensuring the administration of your SMSF is up to date is also important, so:
- Make sure you review your investment strategy and check that it is still current.
- Check all your SMSF investments are held in the name of the trustee.
- Organise a new valuation for your property if you have not had one prepared recently, or the value of your property has changed materially.
- Review your estate planning and binding death nominations and make sure they are still applicable.
If you need assistance with any aspect of your end of year planning, please don’t hesitate to contact our Bentleys superannuation team. Find your local office here. A little bit of work now may mean a lot more in your retirement pocket later!
General Advice Warning: This article has been prepared for the purpose of providing general information, without taking into account any particular investor’s individual objectives, financial situation or needs. You should therefore, before making any personal decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to your own objectives, financial situation and needs. We would be only too pleased to help if we can.