Superannuation Strategies for Year End Planning
With so many changes to Superannuation, it is important you take the time to review your current strategies before the beginning of the new financial year. Making changes to your strategies may help to facilitate the new rules which took effect from 1 July 2017 and significantly benefit your superannuation savings.
For employees, salary sacrificing is a popular and tax effective strategy for boosting retirement savings.
From July 1 2017, the general limit for concessional contributions is $25,000.
When planning your salary sacrifice strategy, you need to ensure you deduct what SG contribution amount your employer will make on your behalf because the concessional contribution limit applies to employer SGC as well as your sacrificed amount.
If you exceed the contribution cap, you will pay tax at your marginal rate; plus, an ATO interest charge on the excess amount.
Self-employed / Tax Deductible Contributions
From July 1 2017, most individuals can claim a tax deduction on personal super contributions. This is a popular strategy for those who are self-employed or those who are making excess contributions on their own behalf as their employer does not provide for salary sacrifice arrangements.
You need to take into consideration your total deductions for the year. Regardless of how much you contribute, you can only claim an amount that reduces your tax liability to zero. If you think this may be an issue for you, be sure to give your accountant a call to discuss.
Spouse Super Contributions
If your spouse earns less than $37,000 this financial year, you may be eligible to make a superannuation contribution on their behalf and claim a tax rebate up to $540.
If you're claiming a spouse rebate, this will make your spouse ineligible for the Government Co-contribution payment (individuals earning less than $36,813 with a contribution of at least $1000 into their fund are entitled to a $500 Government Co-contribution) so you need to work out which strategy works best for you.
If you're retiring this year and commencing a pension from your super, you may be interested to know that pensions established after 1st June can have payment deferred until after 1 July. This is a useful strategy if you don't need income until after the new financial year.
If you are turning 60 during the year, the pension can be structured so that actual payments won't commence until after age 60 when the payment will be tax free. This is all dependent on your cashflow so personal circumstances will need to be brought into consideration.
Existing Superannuation Pension
If you have an existing superannuation pension, please make sure that you meet your minimum pension obligations before 30 June otherwise the ATO may declare your pension never existed for the financial year and you will lose your tax-exempt status. If this declaration is made, any payments you have received during the income year will be treated as lump sum payments and taxed accordingly.
Transition to Retirement Pensions
If you are over preservation age and still working you can access your super as a non-commutable income stream – referred to as a "Transition to Retirement" (TRIS) pension.
Previously, TRIS pensions were treated as tax exempt but from 1 July the tax structure changed, and earnings are now taxed as if the funds were in accumulation.
If you are drawing a TRIS pension, it is important you do not exceed the 10% maximum limit for pension payments.
With the recent changes, you may wish to speak to us before commencing a TRIS pension to see if the strategy is still of value to you.
Small Business CGT Concessional & Super
If you're a small business owner and you are thinking about selling the business &/or retiring, on sale of business assets you may be eligible to use one of the small business capital gains tax concessions thereby reducing or even eliminating the CGT that may have resulted from the sale of the assets.
Some or all proceeds can be contributed into super as part of your retirement plan.
There are two small business tests to meet the definition to take advantage of this concession – either
1. Aggregated turnover per annum of less than $2million
2. $6million maximum net asset value of business and associated entities
If you are in this position and would like to ascertain if you qualify, please be sure to call your accountant to discuss.
Self Managed Superannuation Funds:
From an Administration point of view, now is the time for SMSF Trustees to start thinking about preparing for the beginning of the new financial year.
You will need to ensure all your minutes of meetings are up to date, contributions are accounted for, and minimum pension payments will be paid prior to 30 June. Leaving these things to the last minute could lead to unintended issues such as the loss of tax benefits if a contribution is not counted in the right financial year.
What deductions can your SMSF generally claim?
· Many insurance premiums
· Ongoing portfolio management fees incl. professional fees for ongoing services
· Ongoing accounting/administration/audit fees
· ATO/APRA lodgement fees
· Costs to upgrade the trust deed necessitated by legislative/regulatory changes
Does your SMSF have a Limited Recourse Loan (LBRA)?
Trustees should check the terms of any related party loans they have with the SMSF to ensure the arrangement is being maintained in commercial terms.
As interest only payments are no longer allowed, you will need to ensure that repayments are now being made on principal and interest terms.
Trustees were required to take steps to ensure arms-length dealings are being met, or unwind the arrangement, by 31st January 2017. If you have not reviewed your LBRA or have any concerns, please contact us immediately to discuss.