EOFY 22-23 and your SMSF – what you need to do before June 30

Maximise tax-deductible contributions (concessional contributions)

Making tax-deductible contributions can be a tax-effective way to build your superannuation. The concessional cap for the 2023 financial year is $27,500.

Concessional contributions include:

• your employer’s superannuation contribution (the compulsory 10.5%);
• any salary sacrificed contributions; and
• any personal contributions you claim as a tax deduction.

Ensure these are all taken into account when determining how much space you have left in your concessional cap.

Ask your employer if they offer salary sacrifice. If they do, it can be a great way to help grow your super tax-effectively because the contributions are made from your pre-tax pay – before you get a chance to spend it on other things.

Remember, salary sacrifice contributions count towards your concessional contribution cap, along with any superannuation guarantee contributions from your employer and personal deductible contributions.

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. Importantly, also check that your fund did not receive any of last financial year’s contributions in this financial year.

Personal super contributions

Most people (employees or self-employed) can make contributions to their super fund and claim a tax deduction in the current financial year. If you are an employee, making a personal contribution may save the hassle of arranging salary sacrificing with your payroll, and still result with the same tax benefits.

The contribution is generally taxed at 15% in the fund (or up to 30% if you earn $250,000 or more). Depending on your circumstances, this is potentially a lower rate than your marginal tax rate, which could be up to 47% (including the Medicare Levy) – which could save you up to 32%.

To do this, you need to allow enough time to ensure your superannuation fund has accepted and cleared the contribution by 30 June.

Important points to consider:

• 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 end of the financial year following the year you made the contribution – whichever is earlier. The accepted ATO form is here. If the paperwork is not completed, you cannot claim the deduction!  It is also important to receive the acknowledgement before rolling over your super to another fund or starting a pension.
• If your income has dropped during the year, and you have already completed the paperwork to make a personal contribution, you can normally vary it before the due date by completing the variation section in the ATO form.
• Make sure your personal superannuation contributions don’t create a tax loss, as you will be unable to claim the deduction as a concessional contribution.
• If you are aged between 67 and 75, you must pass the work test during the financial year to be able to contribute to super. The work test is met by working a minimum of 40 hours paid gainful employment in a 30-day consecutive period during the financial year.

Consider a “catch up” concessional contribution

While the concessional contribution cap is $27,500, you may be able to contribute more than that without penalty if you didn’t use the whole cap in the previous financial years (2018/19, 2019/20, 2020/21 and 2021/22) and are eligible to make ‘catch-up’ contributions.

To be eligible for this concession you need to ensure your Total Superannuation Balance (TSB) was less than $500,000 (across all funds) as at 30 June 2022.

This might be useful if you pay income tax at more than 32.5% and are wanting to build your super, if you have sold an asset this year and realised a capital gain, or have a spike in your income for any other reason.

TIP: Do your sums carefully to make sure you accurately calculate your unused cap balances!

Consider after-tax (non-concessional) contributions

Another way to invest more in your super is with some of your after-tax income or savings, by making a personal non-concessional contribution.

While these contributions don’t reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15% that’s paid in super on investment earnings. This tax rate may be lower than what you’d pay if you held the money in other investments outside super.

Note, the general non-concessional cap (NCC) for the 2023 financial year is $110,000. Eligibility to utilise the cap can depend on your total superannuation balance (TSB). Details regarding TSB thresholds are below.

If you were 74 years of age or younger on 1 July 2022, you may be able to bring forward three years of NCC, depending on your TSB. This enables up to $330,000 of NCC to be made in one year.  If you turned 75 during the 2023 financial year, you must have made your NCC within 28 days after your birthday month.

The bring-forward rule is automatically triggered if you make an NCC of more than $110,000 before 30 June 2023. The total NCCs for the current year and for the next two years must be within the contribution cap of $330,000 total.

There are opportunities for after-tax contributions until you are 75 as well as strategies for estate planning if you are able to access your superannuation and still making contributions.  Your TSB will be relevant in considering these strategies.  The rules are complex and implications wide and varied so please contact your Bentleys advisor to discuss.

Downsizer contributions

The Downsizer contribution enables eligible members to contribute up to $300,000 to superannuation from the sale of their family home. This is regardless of their TSB.

Members must be 65 years or older at the time of contribution before 30 June 2023, and have owned the home for a minimum of ten years, and the proceeds need to be contributed to superannuation within 90 days of settlement. The fund must be provided with the ATO Downsizer form

This personal contribution is not impacted by the concessional or NCC caps and is a once-only opportunity per member.  The contribution does add to the TSB, which may need to be considered for other planned strategies.

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.

Spouse contribution

If your spouse is not working or earns a low income, you may want to consider making an after-tax contribution into their super account. This strategy could potentially benefit you both: your spouse’s super account gets a boost and you may qualify for a tax offset of up to $540.

You may be able to get the full offset if you contribute $3,000 and your spouse earns $37,000 or less pa (including their assessable income, reportable fringe benefits and reportable employer super contributions). Your spouse must be under 74 to be eligible and have a TSB under $1.7m.

A lower tax offset may be available if you contribute less than $3,000, or your spouse earns between $37,000 and $40,000 pa.

Split your concessional contributions with your spouse

You can allocate up to 85% of your 2023 FY concessional contributions before 30 June to your spouse’s super if your spouse hasn’t met preservation age. This is an effective way of building super for your spouse and managing your TSB, which is relevant for the strategies outlined below.

You will need to check with your fund that it offers contribution splitting and find out their process. It usually involves an election to enable one split per financial year using the ATO form.

Co-contributions

If you are under 71, earn less than $57,016 in the 2023 financial year, and at least 10% of your income is from your job or a business, you may want to consider making an after-tax super contribution. If you do, the Government may make a ‘co-contribution’ of up to $500 into your super account.

The maximum co-contribution is available if you contribute $1,000 and earn $42,016 pa or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $42,016 and $57,016 pa.

Be aware that earnings include assessable income, reportable fringe benefits and reportable employer super contributions. Other conditions also apply – contact us if you need help.