SUPERANNUATION STRATEGIES FOR END OF FINANCIAL YEAR
By Patrick Malcolm
In the lead up to 30 June 2019, we will be writing a series of articles that outline several action items that may require your consideration before 1 July 2019.
We encourage you to read and share these articles and contact us if you want to discuss their relevance to you.
This article focuses on maximising your concessional contributions into superannuation.
Need a tax deduction and want to build your super? Make sure you maximise your concessional contributions before 30 June 2019.
What are concessional contributions?
Concessional contributions are those that are made into superannuation on a pre-tax basis. This includes your mandated employer contributions, any salary sacrifice contributions and any personal contributions deposited into superannuation, for which a tax deduction is claimed.
The game changer – Personal Concessional Contributions
One of the positive changes that were implemented within the superannuation legislative changes that came into effect from July 2017 is the ability for individuals to make a contribution into superannuation and claim a tax deduction, up to a limit, in their personal tax return.
This was previously permitted for individuals who were self–employed, or defined as those with assessable income from employment being less than 10% of their total income. However, this restriction has been removed, allowing anyone (regardless of their employment status if under 65) to claim a tax deduction.
Therefore savings, or some investments for individuals with an SMSF, can be deposited into superannuation and earmarked as a personal concessional contribution.
The concessional contribution limit
The concessional contribution cap is $25,000 per annum for the 2018/19 Financial Year. This includes the 9.5% superannuation guarantee contribution.
Unlike previous years, there are no longer differing concessional contribution amounts for people in different age groups. The $25,000 applies, regardless of your age. If you are between the ages of 65 and 74, you must meet the work test, which is 40 hours of paid work over a concessive 30 day period.
Carrying forward concessional contributions
Another useful rule change from July 2017 is also the ability for individuals, with less than $500,000 in superannuation at the end of a Financial Year, to utilise the unused portions of their concessional caps from previous years (up to five years’ worth) in future Financial Years.
This unused carried forward cap amounts start from 1 July 2018 (the 2018/19 Financial Year), meaning the 2019/20 is the first Financial Year individuals can take advantage of unused cap amounts from the previous Financial Year.
Advantage of concessional contributing to super
The primary advantage of making concessional contributions into superannuation is the difference in the amount of taxation that is paid. Every dollar that is concessionally contributed into superannuation is taxed at 15%, rather than at your marginal tax rate.
The taxation advantages, at each marginal tax rate, are summarised in the table below:
|Taxable Income||Marginal Tax Rate (excluding Medicare Levy)||For $1,000 in Salary, you receive||For $1,000 your super fund receives, and a tax deduction is claimed||Extra Benefit|
|$37,000 to $66,667||36.0%||$640||$850||33%|
|$66,667 to $90,000||34.5%||$655||$850||30%|
|$90,000 to $180,000||39.0%||$610||$850||39%|
|$180,000 to $250,000||47.0%||$530||$850||60%|
*Individuals with income above $250,000 per annum for Division 293 tax incur an additional 15% tax on concessional contributions.
Other things to be considered:
If you are thinking of increasing your concessional contributions before 30 June 2019, several factors need to be considered. These include:
- How much has already been concessionally contributed into super? If you are close to your contribution limit, then there may not be room for you to make additional contributions.
- What your taxable income is. All concessional contributions are taxed at 15%, upon receipt by the superannuation fund. If your income is below $18,200, your marginal tax rate is zero. Therefore paying the 15% tax on concessional contributions into super is unnecessary. Similar to if your income is between $18,200 and $37,000, where your marginal tax rate is 19% (excluding the Medicare Levy). If your income is above $37,000, then there is a significant tax advantage to making additional concessional into superannuation.
- Accessibility. Remember there are restrictions around when superannuation funds can be accessed.
- Ensuring appropriate notification is given to the superannuation trustee. It is critical that appropriate notice is provided to the trustee(s) of your superannuation fund, where a personal concessional contribution is made, and within the required time limits.
If you believe that you have scope to increase your concessional contributions by additional salary sacrifice, or as a personal concessional contribution using excess funds, the required actions need to be taken ASAP.
If you need assistance in understanding how much has already contributed, and how much more you need to contribute to reach the $25,000 cap, please contact us.
If you have any questions or comments, please email me at firstname.lastname@example.org
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