Your 2014/15 end of financial year checklist
With the end of financial year closing in we look at some ways to help maximise your superannuation now and into the future.
Maximise your after tax (non-concessional) contributions for the year
This strategy is generally utilised by people closer to retirement attempting to get as much of their assets into a tax advantaged environment i.e. superannuation.
These contributions are capped at $180,000 for the 2014-15 financial year. However, anyone under age 65 on 1 July of the financial year can ‘bring forward’ the subsequent two years of non-concessional contributions. This can mean up to a total of $540,000 can be contributed at one time for a three year period.
Tip: Prior to making any non-concessional contributions, it is important to first review any contributions that have been made during the current year and the previous two years.
Maximise concessional contributions for the year
Pre-tax (concessional) contributions are a tax effective way to contribute to superannuation (as long as the total contributed is below the annual cap). They can also help reduce taxable income in the current year which could reduce your overall tax liability. For example, it may help to keep your taxable income below the $180,000 threshold for which the 2% Temporary Budget Repair Levy applies.
The contribution cap is based on the age of a person as at 30 June of the previous financial year.
Note: Contributions above the cap incur penalties. Always check to make sure you don’t exceed the cap. Examples of contributions you might not take into account are insurance premium or additional contributions made by your employer or contributions from a previous employer.
Tip: If your taxable income is under $37,000 the Government provides a low income superannuation contribution (LISC) of up to $500 p.a. on concessional contributions made during a financial year.
If you are self-employed, retired and/or receive less than 10% of your total income (gross assessable income, reportable employer superannuation contributions and reportable fringe benefits) for the financial year from employment activities you may be eligible to claim a tax deduction on any personal contributions you make to superannuation for that year.
Transition to retirement income stream opportunities
A transition to retirement income stream provides a person who is still working but has reached an age that entitles them to access their superannuation in the form of income stream (a non-commutable account-based).
There are a number of benefits, including the ability to:
• continue working and increase the amount you can currently contribute to super as a concessional contribution without reducing your current level of income;
• reduce work hours and maintain your current level of income;
• rollover superannuation money into the pension environment where earnings are not taxable.
There is a requirement to draw between a minimum and maximum amount annually when using this strategy.
Government co-contributions
Government co-contributions provide those eligible with the opportunity to receive a co-contribution of up to $500 from the Government to help increase retirement savings.
To be eligible you must:
• make an after tax(non-concessional) contribution to a complying super fund in the financial year and not claim a tax deduction for the contribution;
• receive 10% or more of your total income for the year from eligible employment, carrying on a business, or a combination of the two;
• have less than $49,488 total income in the financial year;
• lodge an income tax return for the financial year;
• be under age 71 at the end of the financial year, and
• not hold a temporary resident visa during the financial year unless you are a New Zealand citizen or the holder of a prescribed visa.
You do not need to apply for the co-contribution, if you are eligible the Australian Taxation Office will automatically calculate the co-contribution and deposit it into your super fund.
Take advantage of the spouse contributions tax offset
Spouse contributions are after tax (non-concessional) contributions that a person can make on behalf of their spouse. A key feature of this type of contribution is that the contributing spouse may be eligible for a tax offset of 18% on contributions up to $3,000.
To be eligible:
• you must make a non-concessional contribution into their spouse’s complying super fund in the financial year and not claim a tax deduction for the contribution
• your spouse must be under age 65 or if has reached age 65 but is under age 70 must meet the work test
• you and your spouse must be Australian tax residents
• at the time of making the contribution you and your spouse are not living separately and apart on a permanent basis, and
• the spouse’s total income must be less than $13,800 in the financial year.
Spouse contributions count towards the spouse’s non-concessional contributions cap.
Contribution splitting opportunities
Contribution splitting gives you the opportunity to increase your spouse’s superannuation, using money they have accumulated within superannuation.
You can split:
• a maximum of 85% of pre-tax (concessional) contributions
- made in the last financial year
- up to the concessional contributions cap
where your spouse:
• has not reached preservation age, or
• has reached preservation age but
- is under age 65 and
- has not retired.
To split a contribution you must apply to your super fund by the earlier of:
• the day of the request that their entire account balance to be rolled over, transferred or cashed in for the financial year in which the contribution was made, or
• the end of the following financial year after the contribution was made.
Ensure your Tax File Number has been provided to your super fund
If your super fund does not have your Tax File Number (TFN) before the end of the financial year, your employer contributions will incur 15% contributions tax plus an additional 31.5% ‘no-TFN contributions tax’. Importantly your super fund may not be able to accept any personal contributions.
Note: This article is for general information purposes only and does not constitute advice. With all of these options there are a number of considerations outside the scope of what is covered in this article that you should discuss with your financial advisor to ensure your personal circumstances are taken into consideration.
