(03) 9020 2905PORTFOLIO POINT: The All Ords punching through 5000 points shouldn’t distract SMSF trustees from what’s important – making sure your super fund is shipshape for June 30.
It felt almost like fairies had descended earlier this week when the All Ordinaries reached, albeit briefly, above 5000 points.
When it first fell back below 5000 points, in July 2008, most super investors were probably thinking “Wow, that was awful!” The market had fallen about 26% from its peak above 6800 points to about 5000 in about nine months – a major crash in anyone’s language. But, in the words of Karen Carpenter, it was a case of “We’ve only just begun …”. From 5000 points, the market was to slip about another 38% to just below 3100 points.
The beauty of percentages means that the gain since the bottom (not including dividends) is now nearly 62%. That’s a phenomenal return in anyone’s language, as it has occurred in just 13 months.
Sure, get a little starry eyed about your returns over the last year. But remember, you’re still a long way from the top. And repairing super balances is not just about investment returns – it’s equally about knowing super’s rules and how to make the most of them.
Factually, so much strategy revolves around the financial year. So, today we’re giving you eight tips to consider before the end of the financial year. And as always, unlike some other publications, we’re giving them to you in April so that you’ve got enough time to implement them.
Get your free co-contributions
Even if the market has done 62% in the last year, guaranteed, risk-free, 100% returns are not to be sneezed at.
True, the government co-contribution isn’t what it used to be. Last year, the Rudd Government, in an austerity measure, cut the value of the government co-contribution from $1500 to $1000 for this financial year and the next two.
But that’s not a reason to avoid it. And it’s possible, given the shape the budget is likely to be in this year, that the Rudd government could lift it back to $1500 retrospectively to cover the current year. (Former Treasuer Costello did a late doubling of the co-contribution, from $1500 to $3000 in the 2007 financial year. So there’s hope.)
The income for which the full benefit is payable this year is $31,920. If you earn less than that and contribute $1000, you will have your co-contribution matched by the Federal Government. The benefit cuts out, on a sliding scale, once you reach $61,920.
Have you breached your limits?
The reduction in the concessional contributions limits will probably cause some headaches for some people this financial year. We have warned about this earlier in the financial year, but if you haven’t done something about it yet, it’s not too late to minimise the damage.
The concessional contribution limits were cut on July 1 last year. For the over 50s, they were cut from $100,000 to $50,000 and for everyone else, the limit was also halved to $25,000.
The real problem for some super members will be if they did not adjust their salary sacrificing strategies from the previous year. Salary sacrificing strategies do need to be reviewed every year, particularly if your salary has increased or decreased.
Rethink your contribution strategy
The halving of the concessional contribution limits doesn’t just impact on the here and now. If governments keep them at their current levels and they are not increased, it will obviously impact on your future. The impact will, actually, be greater on younger Eureka Report readers. And by that, I mean anyone whose age starts with a 3 or a 4.
Under the current rules, someone turning 50 today could get in approximately $475,000 into super under concessional rules. That’s three years at $50,000 and 13 years at $25,000. That’s before retiring at 65.
The previous rules were far more generous. You would still be able to get in $100,000 for three years and then 13 years at $50,000 for a total of $950,000, before an age-65 retirement. Pre-June 30, 2007, rules were even more generous.
For “younger” readers, the real impact is not being able to get a useful amount of money into super after turning 50. If the lower limit of $25,000 is to remain, people are going to have to contribute to super earlier. A 40-year-old will only be able to get $500,000 into super tax effectively.
If a 40-year-old earning $100,000 has only the 9% paid into his super for him until he turns 50, then salary sacrifices the maximum, they will only get $465,000 into super.
Members will have to start contributing to super far earlier. And you’ve got time to do something about it this year.
Transition to retirement/salary sacrifice strategies
Like contribution strategies, which team up with transition to retirement income streams and salary sacrifice streams so neatly, your pension and sacrifice strategy needs to be annually checked, if not recalibrated.
How much income do you need? How are your non-super assets travelling? Do you want to increase/decrease the income taken as pension from your fund? Are you making the most of your concessional contributions limits? These questions need to be asked every year.
Shovel other assets into super
Asset rich, but cash poor? You could consider transferring shares and other selected assets (such as commercial property) into super.
The act of transferring in is a capital gains tax event, so you might have to pay some tax. However, the real advantage comes after that point. If you put in your BHP shares, which you bought a few years back for $15, you would not have to pay CGT based on today’s current price of around $43-44. However, that may be the last CGT you have to pay on those shares. If those shares go on to become worth $100 or so in a decade and your fund is then in pension phase, you won’t have to pay CGT, as super funds in pension phase don’t pay tax.
Make the most of non-concessional limits
Assets transferred into SMSFs in specie go in through the non-concessional limit. The non-concessional limit is $150,000 a year, for everyone. It is not dependent on age. You are also allowed to bring forward two years worth of contributions to contribute at once. That can mean a total of $450,000 per person being transferred into the super fund.
However, those looking to transfer in assets (or cash) at this time of year should restrict how much they put into super before June 30. If you put in more than $150,000 in non-concessional contributions in a single year, you trip the bring-forward provisions to include the year in which you’ve first exceeded the limit.
However, if you restrict yourself to putting in $150,000 or less this financial year, you could put in $450,000 from July 1, meaning you have got in $600,000 in, potentially, just a few months.
And this is per person. A partner is also a potential contributor of the same amount.
Tax deductions for the self employed
It’s far too easy for the self-employed to put off contributing to super until … “later”. But it’s a tax deduction. And many businesses, come this time of year, are looking for them.
If you’re taking a reasonable salary, or directors fees, or distributions from your business, you could be shortchanging yourself from a total tax perspective. You’ll only end up paying 15% on super contributions on the way in and cut your tax bill in your business.
Find lost super
There’s billions sitting out there in funds that people have lost track of. There MUST be Eureka Report readers who have money sitting in lost funds.
Head to www.ato.gov.au and follow the prompts. If your name, or tax file number or address matches, you can follow the steps to try to reclaim your money. None there for me any time recently. But I have been able to alert family and friends to lost sums.
Bruce Brammall is director of Castellan Financial Consulting and author of Debt Man Walking.