SUMMARY: Make sure you get your salary sacrifice sorted properly in the 30 June final countdown for contributions.
Timing is everything. Normally top of mind when I’m swinging a golf club or a tennis racquet.
But every June, you should have superannuation timing on the brain. This June in particular.
We’ve not got long to go till 30 June, when higher contribution limits are gone forever. (And we enter a period where it becomes harder to get money into superannuation than ever before.)
On 1 July, annual limits for concessional contributions fall to $25,000 (from $35,000 or $30,000) and non-concessionals fall to $100,000 (from $180,000).
For many, the real problem is going to be having one last crack at getting those contributions into super. And it’s here where timing becomes the real issue.
The basic premise that needs to be understood at this time of year is this: Contributions are counted as being received on the day they hit the super fund account.
If the super fund does not receive the money until 1 July … then the funds/contributions are considered to have been received for the following financial year. And will count towards the following year’s contributions limits, not this year’s.
That means … no sending cheques. Australia Post ain’t what it used to be. And the ATO doesn’t accept the old classic, “the cheque got lost in the mail”.
This means you really shouldn’t leave contributions to the last minute. Some intra-bank transfers happen instantly. Many inter-bank transfers happen overnight. But some transfers, including Bpay, can take 48 hours.
Don’t think that you can transfer money on 30 June. It will likely be too late.
Employer – salary sacrifice
For many, the fact is that it is probably too late now to get further concessional contributions into super. The hardest route to getting money into super at this time of year is if you are trying to get it in via salary sacrifice with an employer.
Employers only need to pay super contributions to a super fund by the 28th day after the end of the month (or quarter). That means that any superannuation guarantee (SG) or salary sacrifice arrangements you have for this month (to 30 June) don’t have to be paid until 28 July. That’s clearly too late if you’re trying to get extra money in under this year’s higher caps.
You can’t force your employer to do anything. But you can try to find out their track record. Many employers do pay their super contributions for June in June itself, partly so they can claim the tax deduction for the business in the current financial year, rather than the following year.
Call your super fund and find out when your employer made their June payment last year and the year before. Call your human resources department and ask them when they intend to make their June super payments. You might be able to have some influence.
But also understand that “salary sacrifice” needs to be made from income that hasn’t been earned yet. So, you can only make a deal with your employer and the ATO for salary sacrifice for money earned this month if you can get that letter to your employer immediately … and if your employer is going to make those contributions in time for the super fund to have received them this month.
Also, consider making changes to your salary sacrifice arrangements for FY18 now.
If you currently have your sal sac arrangements set to hit an annual total CC limit of $30k or $35k, then you might find yourself very early in the new financial year in a position where you set yourself up to exceed the limit, given SG contributions that will be made ongoing throughout the year.
Personal deductions – self employed and self-supported
If you’re considering making contributions for yourself, make sure that you’re able to make them. Be aware that this is the last year that the 10% rule will hold people back from making deductions. Next year, the 10% rule disappears. Woo-hoo!
If you’re going to make personal deductible contributions, make sure they are received this financial year. And, if you’re doing it to a SMSF, don’t forget to follow up on the paperwork – with a “notice of intention to claim a tax deduction” from you as members to the trustees and a return acceptance of the instruction from the trustees to the members, before the 2017 tax returns are lodged.
Spouse contribution splitting
This one is going to be critical for any couples in the unfortunate position of having unequal superannuation balances.
If you and your partner have uneven super balances – for example, balances of $2.5m and $600,000 – then one way to help fix those balances is to move concessional contributions from one spouse to another.
Up to 85% of CCs made for last financial year (FY2016) can be moved from one spouse’s account to the other spouse’s account. But they can only be made in the financial year after. That is, to move contributions for FY16, the move has to be completed before the end of FY17.
Using this method, you can move up to $29,750 (85% of $35,000) from one spouse to another. For those under 50, it would be $25,500 (85% of $30,000).
The tiny current limit of $10,800 for low-earning spouses for income tax rebates gets significantly lifted on 1 July.
The limit gets lifted from a bottom end of $10,800 to $37,000. Higher-earning spouses who make contributions to their partners can earn an 18% tax offset (worth up to $540) for contributions of up to $3000.
Yes, the contributions need to be received by the low-earner’s super fund by 30 June!
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 new book, Mortgages Made Easy, is available now.