As the end of financial year approaches, it pays to start thinking about whether or not you will be able to make any additional personal contributions to your super.
In addition to topping up your retirement nest egg, you will also benefit from some generous tax breaks.
Recently, there has been a lot of discussion surrounding the future of these tax concessions so if your financial situation is permitting, it might be worth considering maximising your contributions as soon as possible.
Super for the self-employed
Self-employed Australians can make contributions to their superannuation and claim a full tax deduction. These contributions are considered to be part of your concessional contributions cap (tip: deductible superannuation contributions can offset an unusually large taxable income, for example, if you have made a significant capital gain from the disposal of an asset).
The concessional contribution caps for 2014/15 are:
– General cap of $30,000
– Higher cap of $35,000 for those aged 49 years or over on 30 June 2014
Set up a salary sacrificing arrangement
In a salary sacrificing arrangement, your employer will hold back part of your gross (before tax) pay and contribute it to your nominated superannuation account.
The contributions to your super account are taxed at the flat rate of 15%, which is typically much lower than your marginal tax rate. Salary sacrificing into your super reduces your total taxable income, thereby reducing your tax bill.
Super contributions for your spouse
If you have a spouse who is a low-income earner (as is often the case when one party has taken time out from the workforce to raise a family) then making superannuation contributions on their behalf is a great way to reduce your tax bill. As an added benefit, their superannuation savings won’t suffer from their contributions break, and the money will work hard due to compound interest and low tax rates.
Having savings in two different superannuation accounts can also increase your options and financial flexibility in retirement.
It is important to monitor your contributions caps to make sure that you do not exceed the maximum amounts allowed. Super contributions exceeding the caps will be taxed at the top marginal tax rate.
End-of-financial year superannuation tax checklist:
- Do I have the necessary records for all of my superannuation contributions and accounts?
- What is the total amount that I have contributed this year (including my super guarantee amounts)?
- Can I make a contribution for my spouse? And is this an effective tax minimisation strategy?
- Were there any contributions from the previous financial year that I can super split into this current financial year?
- Should I consider making any additional contributions before the end of financial year (concessional and non-concessional)?
End of financial year: SMSF
The compliance requirements for SMSFs are extremely stringent, and it is important for trustees to be acutely aware of their responsibilities.
Of course, your accountant is there to help you out, but you should always aim to have a robust understanding of your SMSF’s reporting requirements.
Withdrawing minimum pension
SMSFs that do not distribute minimum pensions to members who are in pension phase may face hefty tax penalties. If a member of your SMSF has recently reached pension phase or you are at all unsure as to what your minimum pension amount is, please do not hesitate to contact our office.
All of the contributions that have been recorded for your SMSF need to be deposited in the SMSF’s bank account by no later than June 30 2015. This is especially important where members have reported concessional or non-concessional contributions.
If you are eligible to split your superannuation contributions then you may be able to make some savings on your tax bill come June 30.
This is especially true where your spouse is a low-income earner. However, even if your spouse is not a low-income earner, there are other advantages to splitting income between accounts, for example, increased income flexibility in retirement.
Super stream – 1 July 2015
SuperStream is a government reform aimed at improving the efficiency of the superannuation system. Under SuperStream, employers must make super contributions on behalf of their employees by submitting data and payments electronically in accordance with the SuperStream standard. All superannuation funds, including SMSFs, must receive contributions electronically in accordance with this standard.
There are a range of options for meeting your SuperStream obligations. Each option involves providing your employer with:
- your SMSF’s Australian business number (ABN)
- your SMSF’s bank BSB and account number for receipt of contribution payments
- an electronic service address for receipt of a contribution data message.
You need to provide these details to your employer so they can meet their super obligations and to make super contributions electronically into your SMSF.
SuperStream will not affect your SMSF if it:
- does not receive any employer contributions
- only receives personal contributions made by members
- only receives contributions from related-party employers
If unsure or require assistance with setting up the electronic service address, please contact our office.