Eight super things to do before June 30

SUMMARY: There are just five weeks left to make the most of some super rules for this financial year.

It seems to come around faster and faster every year – but 30 June is just five weeks away now.

That’s not a lot of time to plan the last-minute special efforts that add the one percenters (or more) to your SMSF performance. The efforts that help reduce tax, take advantage of government incentives and use-it-or-lose-it benefits.

It’s been a good year for investing – both inside and outside super – so long as you have been reasonably invested in growth assets.

So here are eight special efforts you can make this year to make sure your super is looking as healthy as possible ahead of 30 June.

Make the most of concessional contribution limits

There are new concessional contribution limits for most Australians come 1 July. And putting some thought into maximising both this year’s and next year’s contributions should be high on all SMSF trustees agendas.

The rules for the current year are, for those who can contribute, $25,000 for the under 60s and $35,000 for the over 60s.

That shifts to $35,000 for the over 50s and $30,000 for everyone else. Read about the new contributions limits here (my column, 3/3/14).

Ditto for non-concessional contribution limits

Similarly, non-concessional contribution (NCC) limits are increasing, as they are tied to the base concessional contribution rate. It is moving from $150,000 to $180,000 from 1 July.

There is some strategy involved here to make the most of them. NCCs are the contributions where you can make contributions of up to three years worth of contributions, under the pull-forward rule (see this column of 24/6/13).

However, the year that you trigger the pull forward rule (as in contribute in excess of the annual limit for NCCs) is the limit you are stuck with. So, if you contribute, for example, $200,000 this financial year, then you would be limited to total NCCs of $450,000 for FY14, FY15 and FY16.

If you make $150,000 of NCCs this financial year, you could potentially make $540,000 of NCCs from 1 July, which would cover you for the FY 15, FY16 and FY17 years.

Like CCs, NCCs are per person, so two individuals in a SMSF could potentially make up to $300,000 ($150,000 each), followed by $1.08 million ($540,000 each) after 1 July, for a total of $1.38 million in the next six weeks.

Spouse contribution and tax rebate

You can make a contribution for a low-earning spouse and receive a special tax rebate for doing so.

If your spouse earns less than $13,800, then the higher earning spouse can make a contribution of up to $3000 to the lower-earning spouse’s super account and generate a rebate of up to $540.

To get the full $540 rebate, the receiving spouse must earn less than $10,800 and the contribution must be at least $3000. It reduces from there until an income of $13,800 is reached, above which no rebate is payable.

Spouse contributions splitting

You can split up to 85% of the concessional contributions from one partner to another, which can be useful to build up superannuation balances of lower-earning spouses.

If you have made CCs of $25,000, then after tax, the amount would be $21,250. This amount can be split with your spouse.

We had a big scare on evening up super balances, with the previous government’s intention to tax super pension funds that earn in excess of $100,000 a  year.

While the Coalition ditched the proposed tax, it could still make a comeback in the future. So couples should take steps to even up their super balances and spouse contribution stratgies are one way of doing this.

Contribution splitting needs to be done before the end of the following financial year in which the contribution was made, so you can still make them now in respect of FY13, which ended on 30 June last year.

Review salary sacrifice arrangements

There are a few things to do in regards to your salary sacrificing – some in regards to the current financial year and some in regards to the next financial year.

First, this year. If you’re pushing your contributions to the limit, you need to double check with your employer about the timing of their contributions to make sure that contributions are being made in the right financial year.

Businesses have up to 28 days after the end of a quarter to make their superannuation guarantee contributions for employees. This can mean that they are not making their SG contributions until up to 28 July, which puts the contributions in the following financial year’s count. The same could apply to any salary sacrifice arrangements.

If you’re not doing it through a SMSF, call you super fund to find out what contributions have been made this financial year and when. Also, you may want to speak to your employer to find out when they intend to make the payment. Going over contribution limits, even by a little, can set off annoying paperwork and extra tax with the ATO.

And next year. There are new CC limits available for many from 1 July (see above) with the under 50s moving to $30,000 and the over 50s getting $35,000, so get your new contributions strategies and salary sacrifice arrangements ready to go from 1 July.

Take minimum pensions

If you don’t pay the minimum pension from your super fund, then you risk your pension fund being stripped of the tax benefits of being a pension fund.

Minimum pensions are set by age. There are no maximum pensions for account-based pensions, but there is a maximum of 10% for transition to retirement pensions.

The balance for paying the pension is either the balance at the commencement date of the pension, or the balance on 1 July.

Table 1: Minimum pension drawdowns

Crystallise some losses

Plenty of SMSFs will be sitting on some big gains from the last two years – and might possibly have even had to take some profits through sales or takeovers.

It might be worth considering taking some losses to offset those gains. The tax on capital gains, which is a gain on an asset held for longer than 12 months, is 10% for super funds.

For example, if you have made $20,000 worth of taxable capital gains in your super fund this year, you will have tax of $2000 to pay. However, if you also had $10,000 of losses that were sold, then the the net gain would only be $10,000 and $1000 of tax would need to be paid.

Anyone considering a strategy of selling (and potentially rebuying sold assets) needs to be aware of the “wash sale” rules. The ATO takes a dim view of contrived arrangements to avoid tax.

The $500 government co-contribution

This government giveaway is not what it used to be, but it’s still worth taking, if it suits your situation.

If you earn less than $33,516 and make a non-concessional contribution, the government will meet your contribution at 50 cents in the dollar up to $1000. That is, if you put in $750, the government will offer a bonus of $375.

The contribution starts to run out above $33,516. For ever dollar over that, the potential benefit of $500 drops by 3.33 cents up to the maximum of $48,516.

You also have to meet work tests. If you are 65 or over, you must have worked 40 hours in a 30-day period. And everyone must meet the work test of earning 10% of their income from either employment or self-employment.

You must also be under 71 at the end of the financial year in which the contribution is made.

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The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E: bruce@castellanfinancial.com.au