Countdown to 30 June

PORTFOLIO POINT: The countdown to 30 June has started. Here’s your SMSF preparation checklist to make the most of this year.

While superannuation isn’t a race, there are aspects of it that take on great urgency at times.

And, for those who run their own SMSF, that’s especially true. Leaving everything to the last minute only creates stress. Or worse, missed deadlines. And that’s not what this column is about.

Understand, though, that 30 June is a significant day for super (as well as for tax). It’s the cut-off day. The start of a fresh year inevitably means many things, including new contribution limits to be planned for.

So here are nine things you should be considering getting on top of before 30 June.

1.Maximise concessional contributions

For many of you, this will be the last year you can get $50,000 into super via concessional contributions – those taxed at just 15%. From July 1, for the vast majority of Australians, the concessional contribution limit falls to $25,000.

(The exception is the 50-50-500 rule. But, sounding like a broken record, we’re still waiting on the detail. Hopefully that will come in the Federal Budget on 8 May.)

If you’ve got more than $500,000 already in your super fund, then it might well be worth making a extra sacrifice prior to June 30, knowing that you won’t be able to shovel as much into super afterwards.

That is, over FY12 and FY13, the over 50s will be able to put in a total of $75,000. It might be worth suffering a little pain in the last couple of months of this year to get that $50k in. You can ease up on the contributions after July 1 and relax a little then.

2.Super is a partnership deal

Most couples consider themselves a team and plan many things as part of a financial team. One of the great powers of SMSFs is using the team mentality to maximise super taxation benefits.

If you’re running your own business, are you and your partner using joint forces to maximise your SMSF?

SMSFs are a particularly useful way of maximising super for couples. Strategies for contributions, transition-to-retirement and spouse super contributions can be used highly effectively by those who wish to play the arbitrage on each member of the couple’s marginal tax rate.

If one of you is on the highest marginal tax rate (46.5%) and the other is on the “average” MTR (of 31.5%), several strategies could be employed.

For instance, if you are considering some end of year salary sacrificing, for the lower earner, it might make sense for the higher earner to make the sacrifice (up to their concessional limit) and then use the “spouse splitting” rules to transfer that super into the other’s super account.

3.Sunset for in-specie transfers

The ability to make trading-cost free in-specie transfers to your super fund ends soon. From July 1, if you’ve got shares you want to contribute into super, you’ll have to pay something.

You’ll either have to pay by selling the shares outside of super and then repurchasing them inside super. Or you’ll have to make the transfer through an existing market, which is also likely to come with a fee to process the transfer.

But until June 30, you can potentially get shares into super without having to pay transaction costs. It can be done, potentially, as either a concessional, or non-concessional contribution. But you’ll need to act fast.

(Be aware of the wash-sale rules – the purchase and sale of shares that is simply done to avoid tax. The ATO takes a dim view of it and can penalise it heavily.)

4.Beat the cuts to co-contributions

Even the co-contribution – designed to add to the super balances of below-average income earning Australians – copped a knife in last year’s Budget.

Until June 30, an after-tax contribution of up to $1000 will be matched dollar for dollar by the Federal Government, if you’re earning less than $31,920. Between $31,920 and $61,920, the figure reduces by 3.33c for each dollar over the $31,920 figure.

That is, if you earn $46,920 and you put in $500, the government will add $500 to your super account. If you contribute $1000, the government will still only contribute $500. So, from that aspect – and given that you might not do your taxes for some time after the end of the financial year – it can be a bit of a guessing game.

But from July 1, the scheme has received a big haircut, partly because of LISC (coming up next). For a start, the maximum will be $500. And you won’t get a cent once you earn more than $46,920. And between $31,920 and $46,920, it will fall by 3.33c per dollar again.

5.Make a spouse contribution

Partners can earn tax rebates on contributions for low-income earning spouses. The rebate can be up to 18% on contributions of up to $3000.

For the full benefit, the spouse needs to earn less than $10,800. If the partner makes a spouse contribution of $3000 (which is non-concessional and no tax deduction has elsewhere been claimed for it), they will be able to claim a tax rebate of up to $540.

This rebate operates on a sliding scale between $10,800 and $13,800. It’s also important to note the “addbacks”. If salary sacrifice or fringe benefits have been used to reduce taxable income, they will be added back for the purposes of this tax rebate.

6.Prepare for LISC

No, it’s not a mis-spelled speech impediment. It’s the “low-income superannuation contribution”. It hasn’t had loads of airplay to date. And that’s largely because it’s designed to act like a software update – just something that happens in the background. But it’s going to become a very important contributor to super balances for low-income earners.

From July 1, if you earn less than $37,000 a year, you won’t even have to pay the 15% on your Superannuation Guarantee contributions that is normally paid on super contributions.

That is, the 9% that is paid into your super fund will be refunded, up to an annual salary of $37,000.

If you’re paid $30,000, normally your boss (including you, if you’re self-employed) would put in 9% of that as the Superannuation Guarantee contribution. That’s the $2700. When that $2700 is contributed to super, $405 is normally stripped off in contributions tax. With LISC, the $405 will be refunded to your super fund.

7.Review (and study) salary sacrifice arrangements

If you are an employee, have you timed your salary sacrifice payments properly?

One rule you might not be aware of is that employers are, essentially, able to make the final super contribution of the year to suit themselves from a tax perspective.

When a company makes its super contribution for the month of June (or even the June quarter), they are only liable to make that contribution before July 28. However, if they wish, they can make that contribution prior to June 30.

You might have planned your super contributions (SG and salary sacrifice) to hit exactly, for instance, $49,500. Your employer might normally make your June contribution of $1500 on June 30 instead of July 28, including your monthly salary sacrifice of $2600 at the same time.

All of a sudden, instead of contributing $49,500 for the year, you’ve contributed $53,600. And then you’re hit with an excess contributions tax notice.

It can pay to speak to your super fund AND your pay office to find out when super contributions are going to be made for the year ending June 30.

8.Review your pension

Have you turned 60 during the year? Is your pension going to start coming to you tax free, rather than just with a 15% rebate? Have you recently turned 55 and want to turn on a transition-to-retirement pension?

Have you been taking too much pension? Too little.

And while it can be proactive, it can be just as much about being defensive and making sure that you haven’t taken too much pension. Here are the minimum pensions that need to be taken for this financial year.

Table 1: Pension minimums

If you’re between 55 and 65 and on a transition to retirement pension, then your maximum pension is 10%.

9.Review your investment strategy

An investment strategy is a legal requirement of the SMSF trustees. But it’s not just the piece of paper that sits in the back of the SMSF file.

Investment strategies need to be carefully thought out and then stuck to. Are your current investments sitting within the guidelines of your investment strategy? Or does your investment strategy itself a little out of date and require a review?

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Spending a little time between now and June 30 making sure you get this year right can add some cream to your super pie.

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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 highly complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking.