If you run a self-managed super fund then the end of the financial year throws up a range of opportunities and risks in almost equal measure. Either way, it’s time to get organised.
I want to focus solely on items where you must take action by June 30 — the areas that superannuation fund members need to pay particular attention to are: their ability to claim a tax deduction, tax offsets, and government co-contributions. Let’s look at these items individually.
If a super fund member is aware they will be required to pay personal income tax on their salary and/or investment earnings, then they could consider making deductible super contributions to reduce their income tax liability.
Since July 1, 2017, the maximum deductible super contribution a member can make is $25,000 per annum. The limit includes any employer super contributions made for the member, as well as any salary-sacrificed super contributions. These contributions will need to be subtracted from the available limit.
There is a selective opportunity that may not be widely known. Although the annual limit is $25,000, a member may be able to claim more than the annual limit if they have made further deductible contributions this month.
For example, if a member made $25,000 in deductible contributions in March this year and then made a further deductible contribution of $25,000 this month, the member may claim a tax deduction of $50,000 in the 2019 financial year without exceeding their concessional contributions cap of $25,000 for 2018-2019 and $25,000 for 2019-2020.
This is because the first $25,000 made in March must be allocated to the member by April 28 and the second $25,000 must be allocated by July 28. Tax determination 2013/22 supports this allocation of contributions in accordance with the requirements of the superannuation law.
If a super fund member’s taxable income does not exceed $37,000, and either they or their employer has made concessional contributions into their super fund, then their fund will receive a refund of the 15 per cent contribution tax up to $500 paid by their fund on concessional contributions. This is provided that 10 per cent of the member’s total income is derived from employment and/or running a business and the member does not hold a temporary residence visa.
Outside these leading issues there are also two key concessions relevant to low-income super savers — there is a tax benefit to the contributor who makes a contribution to a low-income spouse and there is a government-sponsored matching contribution when low-income superannuation savers make their own contributions to their own fund. Here’s how they both work.
If a member received contributions made by their spouse, their spouse may be entitled to claim a tax offset on making the contribution. This is provided the receiving spouse is under the age of 70 and has not exceeded their non-concessional contributions cap and their total super balance was less than $1.6 million at June 30 last year.
The contributing spouse can claim a tax offset of 18 per cent on a maximum of $3000 non-concessional contributions, made for their spouse, if the receiving spouse’s income is less than $37,000. The tax offset gradually reduces by $1 for each dollar the receiving spouse’s income goes over $37,000. It cuts out altogether once their income reaches $40,000.
If a member made non-concessional contributions into their fund, the government will match their contributions by 50c for every $1 up to $1000. To be eligible, the member’s total income must not exceed $52,697. The member must not hold a temporary residence visa and must be under 71 at the end of the financial year.
The co-contribution is reduced by 0.0333c for every dollar above the income threshold of $37,697. The member will only be eligible for the co-contribution if their total superannuation balance was less than $1.6m at June 30 last year and they have not exceeded their non-concessional contribution cap in the current financial year.
Anyone wanting to lower their personal income tax as well as grow their retirement savings should become familiar with these contribution rules.
Monica Rule is author of The Self Managed Super Handbook.
By Monica Rule
The Australian Business Review
15 June 2019