News 07/08

Super Concepts e-SuperUpdate provides you with technical tips and updates on Self Managed Superannuation Fund topics of interest.

It's now June and the end of this financial year will be with us in just a few short weeks. That gives us an ideal opportunity to act on effective tax planning for superannuation and squeeze into any last minute strategies that are available. However, for some strategies the door may have already closed.

Let's have a look at what may be available.

Last Minute Contribution

There are two types of contributions that can be made to superannuation - concessional and non-concessional contributions. Concessional contributions to super are those which are eligible for a tax deduction. These include employer contributions. For anyone younger than age 50 the concessional contributions cap is $50,000 and for anyone age 50 and above it is $100,000.

Non-concessional contributions are personal contributions, spouse contributions and child contributions for which no tax deduction has been claimed. The non-concessional contributions cap is $150,000, however for anyone under age 65 it is possible to make non-concessional contributions of up to $450,000 over a three year set period. Any concessional and non-concessional contributions which are in excess of the cap are taxed at penalty rates.

Don't forget that once you reach age 65 contributions can only be made to superannuation if you meet the work test of 40 hours within 30 consecutive days during the financial year. Once you reach age 75 contributions cannot be made to superannuation as a general rule.

Contributions to self managed funds can be made in cash or via in-specie contributions of certain property, listed and non-listed investments. Don't forget there may be capital gains tax and stamp duty implications relating to the transfer to take into consideration.

Salary Sacrifice

Salary sacrifice is a great way of making tax effective contributions to superannuation. Remember that these agreements need to be made in advance and 1 July is not that far away so planning your salary sacrifice to superannuation now is a good strategy. Talk to your employer to see whether salary sacrifice is available and how much of your income can be salary sacrificed.

Co-contribution

For anyone who earns less than $58,980 making an after tax contribution to superannuation can have a number of advantages if they qualify for the co-contribution.

The main qualification is that you must be under 71 and at least 10% of your total income must be earned from salary and reportable fringe benefits and make an after tax contribution to superannuation of at least $1,000 during the year.

The maximum amount of the co-contribution is $1,500 if you earn less than $28,980. Once you earn more than $28,980 the co-contribution reduces by $0.05 per additional dollar of income and cuts out when you earn $58,980 or more.

If you have children who have just commenced working the co-contribution may provide an incentive to introduce them to superannuation if they earn less than the maximum income threshold of $58,980.

Personal Tax Deductible Contributions

What many people don't know is that they may be eligible to claim a tax deductible personal superannuation contribution where they are not working or earn a small amount from employment. This is available to people who are self-employed, anyone who earns most of their income from investments or as a pension.

Providing you earn less than 10% of your income and reportable fringe benefits from employment then you may qualify. Until 30 June the amount you can claim as a tax deduction depends on your age. If you are under age 50 the maximum amount taxed at concessional rates is $50,000 and if you are 50 or older it is $100,000. Don't forget once you reach age 65 you need to meet certain work tests if you wish to contribute to super.

Purchasing Insurance in your self managed superannuation fund

If you have your self managed superannuation fund purchase total and permanent disability insurance (TPD) and life insurance it may be more tax effective.

The strategy involves holding your TPD and life insurance through super and the fund paying premiums from any contributions or investment income earned by the fund. The superannuation fund is eligible to claim a tax deduction for the premiums paid for TPD and life insurance.

Contributions splitting with your Spouse

This can be an attractive financial planning strategy as the superannuation rules allow you to split your contributions with your spouse.

The amount that can be split depends on the type of contribution and when it was made. To split the contribution you need to apply in the financial year after the contribution was made.

Spouse Contributions to Super

For those who have a spouse who earns less than $10,800 making a contribution of up to $3,000 can have some tax advantages. By making an after tax contribution to superannuation for your spouse you can receive a tax offset (rebate) of up to $540. This offset (rebate) reduces down to $0 once your spouse earns greater then $13,800.

Combining your Superannuation Benefits before 1 July

Prior to 1 July you may find it useful to combine your superannuation benefits if you have an amount in at least one fund that relates to your membership or employment as far back as June 1983. The reason is that by combining your superannuation benefits you may end up with a greater tax free amount from super. This is important if you will be taking a superannuation benefit prior to reaching 60 or for any death benefits from superannuation to 'non-dependants'.

Of course, it can be worthwhile to combine your superannuation benefits at anytime to reduce the costs of keeping your money in super.

Tax File Numbers

It is important that your superannuation fund has a record of your tax file number. The reason is that if the fund does not have your tax file number it may deduct tax of 46.5% from the contribution made on your behalf. Also, without your tax file number it is not allowed to accept contributions made by you from after tax amounts. This will mean less in your superannuation account and you may miss out on the generous concessions available.

Checklist

Don't forget that it is worthwhile to seek the help of a professional to ensure that you are maximising the advantages available before 30 June and the end of the financial year arrives.