Bruce Brammall, 20 June, 2018, Eureka Report
SUMMARY: Grand final time for superannuation contributions. Are you ready?
The traditional cold sweats/mad panics of the back-end of June have passed by now.
For so many, in so many aspects of your financial life – business, personal and SMSF – you should have been looking for those last-minute ideas that would either save or minimise your tax, or maximise your future tax-free income via super.
Making the most of the rules should have been a thought running through your minds for most of June.
This FY though, from a superannuation perspective, here’s what you need to be thinking of.
- Maximising concessional contributions
Higher limits from years gone by are done. Anyone who can make concessional contributions has the same limit as of now.
The limit is $25,000.
Concessional contributions are, roughly, those for which someone is claiming a tax deduction. Either your business, your employer or you personally (we’ll deal with this next).
Other entities get to claim their tax deductions for superannuation expenses at their “marginal” tax rates. For companies, that is at 30%. For individuals, that can be up to 47% (including the Medicare Levy).
Individuals can contribute up to $25,000 a year as concessional contributions. For most, this will largely come from the 9.5% Superannuation Guarantee Contributions made by the employer. Where your employer makes contributions to your super fund, they claim a tax deduction for the business, generally at 30%.
If you have salary sacrifice deductions via your employer during the year, then these also count towards your $25,000 CC limit.
The self-employed also get to make CCs, from which they claim a personal tax deduction. Depending on their earnings, this will mean a tax deduction at up to 47%.
If you’re an employee earning, for instance, $150,000, then your employer should pay $14,250 into your super fund over the course of the financial year.
That leaves you with $10,750 in further contributions you could make. Either through salary sacrifice, or, as of last year, personal deductible contributions.
- Can you benefit from the removal of the 10% rule?
This is one of the great improvements in superannuation in recent years.
The old rule used to be that if you earned more than 10% of your income as an employee, then you were limited to making contributions via that employer (that is, via salary sacrifice). This caused major headaches for small numbers of people, who were both employees and self-employed.
From 1 July, 2017, the 10% rule is gone. That means that anyone eligible to make a CC can make one, right up to the end of the financial year.
If you are looking at your personal financial situation right now, and are looking for good deductions against your income, then putting money into super could be an AWESOME solution for you.
Essentially, you are putting in a tax-deductible contribution to your super fund and claiming a personal tax deduction.
- Check with your super fund about the timing of contributions
The law, for most businesses, is that they have up to 28 days after the end of the quarter or month to pay your SG contributions.
This means that your employer has until July 28 to pay your super for the quarter, or month, ending on 30 June.
It is important for those wanting to maximise their super contributions to know when their super is actually paid. If their employer wants the tax deduction for the superannuation expense in the FY19 year, they will need to pay it before 30 June. If the business believes they would be better served by paying it in July to get the tax deduction in the following year … well, the rules say that is currently their prerogative. It’s at their discretion.
The problem that creates for employees is that they don’t necessarily know when an employer is going to put money into their super fund.
And this is important because the timing of the contribution is everything. Contributions count on the date they are received, not for the period they applied to.
That is, if your employer owes you $3000 in super for three months to 30 June and it hits your account before 30 June, 2019, then it will count towards your contribution limit for FY19. If they pay it in July, it will count towards your FY20 CC limit.
If they pay it on 28 or 29 of June, but it doesn’t hit your account until 2 July … well, they get the deduction in the FY19 year, but it will count towards your FY20 CC limits. A bit unfair? Mmm, maybe, but that’s the current rule.
If you are sweating on when the contribution is being made, there are a few things you can do. The first is (if you’ve been with this employer for a few years) to check when they have made their contributions in previous years. This can usually be done by calling your super provider. The second is to call your pay office and ask them when they normally make this end of year contribution. This may give you the best indication of when they are intending to make your payment.
If they make it late, or early, and it puts you over the CC limit for the year, then there are potential “excess contributions” taxes that could be paid. (A topic for another time.)
- Maximise non-concessional contributions
And then there are the after-tax contribution limits, known as non-concessional contributions, or NCCs.
The annual limit for NCCs is $100,000 (down from $180,000 a year in previous years).
NCC limits, while annual, also have a pull-forward provision. That is, you are potentially able to put in $100,000 in a given financial year, but you are also able to put in $300,000 in a given year also, under certain criteria.
The bring-forward provisions allow you to put in $100,000 for the current year and then contribute another $200,000 (total of $300,000) that takes into account your contributions for the current financial year, plus the following two financial years potentially.
You are able to use the pull-forward rules to put in up to $300,000 depending on when you turn 65.
If you are under 65 at any time during a financial year, you may be in a position to use the pull-forward rules. But speak to a financial adviser before you do this, if you are turning 65 during a financial year.
If you are over 65, then you can only make NCCs if you meet the work test. And you can’t use the pull-forward provisions, so you are limited to $100,000 in total for the year.
There are also limits in regards to your “total superannuation balance”. Essentially, again, check with your financial advisers before making contributions, if your TSB is above $1.4m. You are limited as to how many years of pull-forward you are allowed to use.
Now, go ahead and get some money into super … but make sure you check with your adviser first, if in any doubt.
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 managing director of Bruce Brammall Financial and is both a licensed financial adviser and mortgage broker. E: firstname.lastname@example.org . Bruce’s sixth book, Mortgages Made Easy, is available now.