With the cooler weather setting in and May almost over, the end of financial year will soon be upon us. While we’re still working with the 2017/18 financial year, we want to remind eligible clients of new superannuation opportunities available which may not only increase your super, but also save you money in tax.
Here are the recent changes:
1. Personal Deductible Super Contributions
The Australian Government lowered the annual Concessional Contribution limit to $25,000 for this financial year (it was previously $30,000 – or $35,000 for those of us over 50).
Contributions in this category include SG payments (typically 9.5%) and any salary sacrifice contributions. The positive aspect of the law change for employees is it’s now possible to make last minute super contributions at the end of the financial year – to benefit from any unused part of the limit. Before the law change, the only way employees could do this was to salary sacrifice during the year.
The benefits of making additional contributions (within your $25,000 limit) are two-fold:
- You will be adding to your retirement assets within a concessionally-taxed environment.
- You only pay 15% tax on funds contributed to super (unless your taxable income exceeds $250,000), which is usually significantly lower than your marginal tax rate.
Scenario:Fred earns $90,000 per year, with his employer paying the standard 9.5% ($8,550) in SG – so he is well within his $25,000 annual limit. He makes a personal deductible contribution of $1,000 to super, paying $150 (15%) in contributions tax, leaving $850 invested. The contribution is deductible, so it lowers his taxable income by $1,000 so his personal income tax liability drops by $390 (39% tax rate, including Medicare levy) which gives Fred an overall tax saving of $240.
Our tip – if you have savings to spare and unused space in your $25,000 limit, you might want to make a contribution to your super before 30 June.
You will need to tell your fund if you are claiming a deduction for super contributions by completing a ‘Notice of Intent to Claim a Deduction’ form.
Things to be aware of:
- For employees earning more than $250,000, an additional 15% tax may apply on super contributions.
- Contribution amounts shown on payslips are usually only indicative and may not reflect the real timing of actual payments made – so it can be difficult to determine your unused limit.
- If an employer pays super contributions for the June quarter after 1 July, those contributions go towards next year’s limit – another factor which can make it hard to calculate your annual unused limit.
- You will need to check with your payroll team as to the timing of their contributions – if any payments were withheld, this may impact your ability to contribute.
- Funds you contribute will be preserved in superannuation until you meet a condition of release.
- If you breach your concessional contribution limit, the excess contributions will be taxed at your marginal rate, along with an excess concessional contributions charge to adjust for the late collection of the income tax liability.
2. Spouse Contributions Tax Offset
There is a tax offset available for taxpayers who make contributions on behalf of a spouse who is earning a low income, or not working.
For contributions of up to $3,000 made for a spouse on a lower income, there is a tax offset of 18% available, providing the spouse’s income is less than $37,000. (The tax offset shades out above $37,000 and cuts out entirely once the spouse’s income reaches $40,000.) The maximum tax offset is $540.
In previous financial years’ the lower income-earning spouse’s income cut-off level was only $13,800. With the significant increase in the cut-off level to $40,000 many more Australians will be eligible to benefit from the change.
The benefits of making spouse contributions are:
- Adding to your spouse’s retirement assets within a concessionally-taxed environment.
- There is no tax paid on entry to super for this type of contribution (a non-concessional contribution).
- You will be eligible for a tax offset of 18% on contributions made up to a maximum of $3,000.
Scenario: Judy makes a $2,000 contribution for John, her spouse whose taxable income for the financial is $25,000. Judy will be entitled to a tax offset of $360 when she completes her tax return.
Our tip – if you have savings to spare and you have a spouse whose taxable income will be less than $37,000 in the current financial year, you might want to make a contribution before 30 June.
Note: Spouse contributions do not count as part of the $25,000 concessional contribution limit.
Things to be aware of:
- If your spouse ends up earning more than $40,000 during the financial year you won’t be entitled to an offset.
- You won’t see the tax offset until you have completed your tax return for current financial year.
- Funds you contribute will be preserved in super until you meet a condition of release.
- By making a spouse contribution, the funds will be under the control of your partner and will not be accessible to you.
- Spouse contributions count towards the receiving spouse’s annual $100,000 non-concessional contribution cap.
- The tax offset only applies to the first $3,000 in spouse contributions made during a financial year. Contributions in excess of this amount will attract no additional tax benefit.
Let us know if you have any questions or require assistance with any last minute super contributions.
Disclaimer: The information in this email is general advice only and has not taken into account your personal circumstances. Please seek personalised advice prior to implementing any additional contributions.